Managers urged to prepare as pay trends expected to continue rising in 2024

Managers urged to prepare as pay trends expected to continue rising in 2024 | Insurance Business America

Risk Management News

Managers urged to prepare as pay trends expected to continue rising in 2024

Inflationary pressures and tight markets has led to a notable surge

Risk Management News

By
Kenneth Araullo

New insights from WTW reveal the top employee pay trends in 2024, an integral aspect to consider as many firms are now realising the prevalence of employee risks in the workplace.

In recent years, salary increases in Europe and North America have been relatively stable, remaining within the 2.7% to 3% range since 2010. However, a confluence of economic and labour market factors has recently driven salary budgets to unprecedented levels. The critical question facing businesses and HR professionals now is the sustainability of these heightened salary budgets.

The current landscape, marked by tight labour markets, inflationary pressures, and employee retention concerns, has led to a notable upsurge in salary increases. In 2023, an overwhelming 96% of organisations reported salary increases, a significant jump from 63% in 2020. This surge has propelled overall salary increase budgets and total compensation spend to new peaks. While a slight downturn is anticipated in 2024, salary increases are expected to remain significantly higher than the historical average.

The year 2023 witnessed average actual salary increases reaching 5.4%, a rise from the 5% seen in 2022. This trend is particularly evident among organisations in the world’s top 15 economies. However, projections for 2024 indicate a slight easing, with anticipated increase budgets hovering around 5%. This marks a departure from the typical budget increases of around 4% observed in the previous two decades.

This escalation in salary increases necessitates a strategic approach to awarding pay increases, moving beyond a uniform methodology. Organisations must consider various factors, including geographic location and the identification of at-risk or critical talent. This requires a multifaceted strategy that extends beyond pay, aiming to optimise total rewards.

In 2023, salary increases not only exceeded the actual increases of 2022 but also surpassed initial projections for the year. According to the December Salary Budget Planning Report, 47% of global organisations reported that their 2023 salary budgets exceeded those of their 2022 compensation planning cycle.

Geographically, the Eurozone, with its inflation rate decreasing to 2.4% year over year in November 2023, exemplifies the need to consider each region individually. Budget increases in Europe for 2023 were higher than in 2022, with variations among countries. The United Kingdom led these increases, with a budget increase of 0.9 percentage points in 2023 compared to 2022.

The primary drivers for these increased budgets were identified as inflationary pressures (cited by 60% of organisations) and a tight labour market (44%). Conversely, economic volatility remains a concern, with 31% of organisations adjusting their budgets in anticipation of a potential recession or weaker financial results.

Looking ahead to 2024, compensation and HR professionals continue to closely monitor labour markets and economic conditions. Initial plans in July 2023 indicated an average increase of 5% for 2024. The December Salary Budget Planning Report corroborates this, projecting that planned increases will average around 5%, with notable geographic variations.

Interestingly, historical data suggests that salary budget increases are often influenced by previous trends, with budgets showing a tendency to lag behind economic trends by six to 12 months. This inertia in budget planning underscores the importance of flexibility and responsiveness in the face of changing market conditions. As organisations navigate these dynamic landscapes, the ability to adapt and respond to emerging trends will be crucial in effectively managing compensation strategies.

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