2024 Pay Raises: Employers Navigate Tight Job Market as Year Unfolds

Six months into 2024, U.S. employers are immersed in a delicate high-wire act as they finalize compensation budgets and pay raise plans.

Though inflation has moderated to around 3% after peaking at 8% in 2022, the job market remains fiercely competitive, forcing companies to carefully balance salary hikes against rising costs and profitability pressures.

The Latest Compensation Data

A Gartner Inc. poll conducted earlier this year showed that 71% of finance leaders budgeted for pay raises of at least 4% in 2024, outpacing current inflation levels. The majority, 58%, planned for increases between 4% and 9%, though that’s down from 70% in that range in 2023.

According to the survey data, fewer companies — just 13% — foresaw raises over 10%, compared to 16% the prior year.

Gartner researchers said the prevalence of raises exceeding inflation underscores the intense competition for talent amid lingering labor short-ages so far this year.

An Evolving Outlook

After last year’s overheated job market sparked an explosion in compensation hikes, data suggests some employers are tapping the brakes in 2024. While 86% of U.S. organizations granted pay raises in 2023, just 79% had them budgeted for this year, per Payscale’s latest annual survey data released in April. The average planned 2024 increase sits at 4.5%, slightly lower than last year’s actual 4.8% average raise. However, some booming sectors may still see hikes around 6%.

Payscale compensation experts noted that despite tentative cooling, employers continue viewing competitive pay as essential for recruiting and retention as stubbornly high living costs strain workers’ finances.

Unmet Expectations Persist

However, surveys show a disconnect between many employers’ pay plans and expectations of workers so far this year. Over half of employees polled feel their current wages aren’t keeping up with inflation, according to staffing firm studies. And a jarring 81% told job site Monster in April that their paycheck has failed to keep pace with soaring costs.

Moreover, an HR tech company study revealed that 73% of workers would consider leaving for a bigger paycheck, saying they’d be lured by an average 13.3% raise — down from 16.1% in 2022 but still elevated.

Calibrating for Maximum Impact

As the year unfolds, compensation experts caution that there is no one-size-fits-all formula for setting pay raises in 2024’s unique environment. While pay-raise projections offer guidance, tailoring plans to address distinct workforce needs, skills gaps, labor dynamics, and individual budgets will be paramount.

Researchers suggest that promoting transparency and open communication around compensation practices could also boost employee retention and recruiting efforts amid growing trends toward pay disclosure. With economic conditions and labor market tides still shifting, employers may need to continually reevaluate and adapt raise strategies to remain competitive for essential talent.

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Copyright © 2024 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.