Employee salaries are expected to remain high in 2024 as employers continue to navigate ongoing labor market challenges.

U.S. organizations are budgeting an average increase of 4 percent in 2024, according to the latest Salary Budget Planning Survey by WTW, a global advisory firm and broker. Down from the actual increase of 4.4 percent in 2023, the figures remain higher than the 3.1 percent salary increase budget in 2021 and previous years.

Seventy percent of U.S. employers budgeted for pay raises to be either the same or higher in 2023 than 2022, the survey found. Less than one-quarter (14 percent) of companies have budgeted for pay raises to be lower than last year.

A tight labor market, cited by nearly two-thirds (61 percent) of respondents expecting changes in their salary budgets, followed closely by inflationary pressures (60 percent), were the two most cited drivers influencing changes in 2023.

Other factors prompting changes to salary budgets included concerns surrounding employee expectations (24 percent), anticipated recession or weaker financial results (23 percent) and cost management (20 percent).

“While we are seeing lower salary increases forecasted for next year, they are still well above the ones we have seen for the past 10 years. This shows that companies are striving to stay competitive in an ever-changing work climate,” said Hatti Johansson, research director, Reward Data Intelligence, WTW.

“Those companies that have a clear compensation strategy as well as a pulse on the factors affecting it will be more successful attracting and retaining employees while keeping pace with an evolving environment in which yesterday’s certainties no longer apply,” she added.

More than half (51 percent) of the organizations surveyed this year reported having difficulty attracting or retaining employees, compared with 57 percent last year.

Survey respondents are expecting labor market pressures to ease, with only 35 percent expecting difficulties in 2024.

In response to these ongoing pressures, organizations are taking action to attract and retain talent.

Half of respondents indicated they have reviewed compensation of specific employee groups, with 28 percent indicating they are planning or considering doing so.

Of those surveyed, 44 percent are hiring people higher up in salary ranges, raising starting salary ranges (43 percent), reviewing compensation of all employees (42 percent) and enhancing retention bonuses or spot awards (40 percent).

Employers are taking a variety of steps to retain talent.

• More than half (59 percent) of respondents have reported broadening their emphasis on diversity, equity and inclusion, and 25 percent are planning or considering doing so.
• A similar number, 58 percent, reported increasing workplace flexibility.
• Almost half of respondents, (46 percent) reported taking action to improve their employees’ experience, with 41 percent are planning or considering doing so.

Other steps employers have taken included changing health and wellness benefits (36 percent), modifying reward elements of compensation programs (33 percent) and increasing training opportunities (26 percent).

Nearly half (43 percent) reported funding the increase in total compensation spend through total rewards optimization (up from 21 percent in 2022).

“As workforces become more diverse, demanding and dynamic, the key is understanding their specific needs and preferences while providing the desired employee experience and career opportunities within the company,” said Lesli Jennings, North America leader, Work, Rewards & Careers, WTW.