U.S. salary hikes to stay high in 2024 amid push to retain talent – survey

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Andrii Dodonov

U.S. employers’ desire to stay competitive for talent appears to be offsetting looming economic uncertainty as they plan to keep salary increases at a high level next year.

The overall average salary raise for 2024 is expected to be 4.0%, according to the latest Salary Budget Planning Survey by Willis Towers Watson (NASDAQ:WTW). Though decelerating from the 4.4% actual average increase in 2023, the projection remains well above the 3.1% increase in 2021 and years prior.

Among the main drivers behind the salary increase budgets include inflationary pressures and concerns over a still-tight labor market, each cited by more than half of the 33K employers surveyed in December 2023. Another common concern, albeit easing from last year, is issues with employee talent and retention (48% vs. 60% in 2022).

“Though economic uncertainty looms, employers are looking to remain competitive for talent, and pay is a key factor,” said Hatti Johannsson, research director of Reward, Data and Intelligence at WTW. “At the same time, organizations should remember 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.”

Despite employers’ concerns, there are a barrage of signs that the domestic economy is slowing, as the Federal Reserve’s tightening campaign, launched in March 2022, runs its course. Inflation continues to ease from the multi-decade highs. The jobs market seems to be rebalancing from pandemic-era extremes. And a number of manufacturing and housing gauges have been coming in soft.

Even so, the Fed has kept its benchmark lending rate at 22-year highs as inflation, although going in the right direction, remains above its 2% goal. It’s largely expected to hold rates steady at 5.25%-5.50% for a third straight meeting next week, as it evaluates the effects of the monetary tightening it has already implemented. Alongside next week’s rate decision, the policy-setting Federal Open Market Committee will update its quarterly summary of economic projections and estimated path of rates, something that investors no doubt will keep a close eye on.

In August, consulting firm Mercer surveyed over 900 organizations to find that employers are planning smaller salary raises in 2024 (+3.9%) vs. 2023 (+4.1%). It’s unclear whether the numbers exceed that of prior years, though respondents did say that pay increases could pull back further should economic conditions worsen.

Similarly, the latest ADP National Employment report showed that private sector wage growth cooled further in November. Annual pay rose 5.6% Y/Y. the slowest pace of gains since September 2021. For those who changed their jobs, wages advanced 8.3% Y/Y, the smallest increase since June 2021. On Friday, though, the Bureau of Labor Statistics’ nonfarm payrolls report showed a pickup in wages, with average hourly earnings increasing 4.0% Y/Y in November to $34.10 vs. 4.1% in the prior month.

In extreme cases, some firms already have cut employee pay. For example, Intel Corp. (INTC), the computing developer giant, reportedly did so early this year, reducing mid-level workers’ pay by 5% and senior leaders’ pay by 10%-15%.

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