Dive Brief:
- U.S. companies plan to raise their salary budgets by 3.9% next year, a near-record increase prompted by a declining supply of workers, the Conference Board said Monday.
- The rise in salary budgets, although lagging the 4.4% boost in 2023, will exceed the 3.8% hike this year, the Conference Board said, reporting on a survey of 300 “compensation leaders” on plans for base pay.
- “Despite a slower pace of hiring and slight increases in unemployment, elevated wages are expected to continue into 2025,” Conference Board Chief Economist Dana Peterson said in a statement. “A shrinking labor supply is driving businesses to focus on retaining their current workforce, leading to sustained salary increases and higher real wage growth as inflation moderates.”
Dive Insight:
Average hourly earnings rose a higher-than-expected 0.4% last month as the unemployment rate dipped 0.1 percentage point to 4.2%, the Labor Department reported on Friday. Payrolls rose 142,000, less than expected but an improvement compared with August.
“The data that we have received in the past three days indicates to me that the labor market is continuing to soften but not deteriorate, and this judgment is important to our upcoming decisions,” Fed Governor Christopher Waller said in a speech Friday.
Traders in interest-rate futures on Monday set 71% odds that the Fed policymakers will cut the federal funds rate by 0.5 percentage point at the end of a two-day meeting on Sept. 18, according to the CME FedWatch Tool.
The central bank since July 2023 has held the benchmark interest rate at a range between 5.25% to 5.5%.
The job market has gradually loosened and returned to its long-term trend since the worst of the pandemic, when employees jumped ship at near-record levels to seize on better pay and benefits elsewhere.
The quits rate, or the number of workers who left their jobs as a percent of total employment, hit a record 3% in November 2021 and again in April 2022. Since then it has eased, falling to 2.1% in July.
The cooling job market has prompted Fed Chair Jerome Powell to suggest that risks of unemployment pose a risk comparable to a resurgence of inflation.
The Fed is focused more on job market health than earlier this year and aims to avert the widespread job loss that often occurs during policy tightening, Powell said on Aug. 23. “We do not seek or welcome further cooling in labor market conditions,” he said.
In light of post-pandemic shifts in the labor market, companies are relying on more than just salary levels to retain and attract employees, the Conference Board said.
“To remain competitive and responsive to market dynamics, employers need to adjust their compensation strategies,” Diana Scott, leader of the U.S. human capital center at the Conference Board, said in a statement.
“Given fluctuating market conditions, leaders are increasing their use of compensation strategies that aren’t tied to base pay, like performance initiatives and other strategic priorities,” she said.
For example, an increasing number of companies plan to reduce their reliance on sign-on and retention bonuses, the Conference Board said.
“As pandemic job losses have recovered and employee turnover has slowed, the premium on these short-term incentives may be subsiding and giving way to more ongoing retention and talent priorities,” the Conference Board said.
At the same time, nearly 14% more companies plan to expand recognition programs next year and 6% will increase equity compensation, the Conference Board.
