Employers budget for annual salary increases in Q4 of each year based on market projections, and affordability. Multiple organizations collect the projected data and provide information by type of increase and by other company demographic data, such as industry and location. In addition to market projections and company affordability, employers also consider how competitively they are paying and if there are certain job functions where the market is moving more quickly than others job functions. These are likely due to low supply and high demand jobs, often referred to as “hot jobs” in Wilson Group’s monthly musings newsletter.
Overall, in the US, the following projections have been released. This is the average increases employees can expect in 2024.
- Willis Towers Watson (WTW): 4.0% (down from 4.4% in 2023)
- Mercer: 3.9% for total salary increases and 3.5% for merit increases for non-unionized employees
- WorldatWork: 4.1% (actual 2023 budgets were higher than projected at 4.4%)
- Payscale: 3.8%
- Compensation and HR Group: 3.8% all employees, 4.52% technical employees, 3.82% non-profits
Several of these surveys have further breakouts by industry and location.
What is considered an annual increase and what are the projections by type of increase?
- Cost of Living Increases or General Increases: These increases are granted to almost every employee, with some contingencies for no increase if the employee’s performance is below expectations or the employee is paid at or above the salary range maximum. WorldatWork data projects 1.8% in 2024 as compared to 2% in 2023.
- Merit Increases: Although there is an overall budget projection, merit increases vary based on performance rating. Many organizations consider not only performance but also the employee’s current salary within their job’s range so that the resulting salary is both competitive and internally fair. The WorldatWork survey for 2024 reports an average merit increase budget of 3.6%, as compared to 3.7% in 2023.
- Other Increases: For employees who are moving up a grade in their career paths or to a new job for a promotion, employers’ budget for these increases which typically vary between 6% and 12% per increase. Following a review of competitive and internal peer data by job function and level, it may be appropriate to make an equity adjustment outside of the typical annual budgets. Other increases considered part of this category are adjusting pay to meet a new (1) state minimum wage usually effective Jan 1 of the new year, (2) adjustments because the salary range minimums have increased, and employee pay is falling below the minimum and (3) adjustments following a pay equity audit to meet OFCCP, or state pay equity guidelines. WorldatWork reports an average of .9% of payroll for 2024 as compared to 1% in 2023.
Other compensation spending, outside of the annual salary increase budgets, are related to base salary and bonus.
Bonus, Incentive and Recognition: The WorldatWork salary planning survey also provides data on incentive compensation budgets as a percent of payroll. Survey providers also have data on incentive compensation spending as a percent of revenue. Employers may also include budgets for recognition programs in this category that include cash and other symbolic items to recognize employees between the paychecks. Some organizations may also include service awards in this category. The WorldatWork survey reports this data by job type.
Although not a direct expense, employers determine if salary ranges should be increased. We typically see ranges move every 1 to 2 years, at a rate less than the annual salary increase budget. The WorldatWork salary planning survey also provides this information. From the survey, the average projected salary structure adjustment in 2024 is 2.6% as compared to 2.8% in 2023.
For assistance with planning for employee increases and bonuses or additional data, please reach out to us at Wilson Group!