Dive Brief:
- U.S. companies plan to slow budget growth for employee pay next year to 3.9% from 4.1% in 2023 amid cooling inflation, a loosening in an unusually tight labor market and a murky outlook for the economy, according to Mercer.
- “If the labor market continues to stabilize and inflation cools further as we move toward the end of the year, compensation pressures are likely to continue to decline,” Lauren Mason, a senior principal at Mercer, said in a statement. “This could prompt further reductions in 2024 compensation increase budgets.”
- Employers plan to reduce growth in budgets for merit increases to 3.5% next year from 3.8% in 2023, Mercer found in a survey. They will also promote less and trim their budgets for that purpose. Based on current plans, 8.7% of workers will receive a promotion next year compared with 10.3% this year, Mercer said.
Dive Insight:
The Mercer report aligns with a Conference Board survey released last month showing that roughly three out of four CEOs (74%) plan to boost wages by at least 3% during the next year.
Most top executives identified wage growth as the sharpest spur to inflation during the coming 18 months, the Conference Board found in a survey conducted with the Business Council.
As price pressures have fallen in recent months, inflation-adjusted wage gains have also declined. The year-over-year increase in real average hourly earnings slowed from 1.3% in June to 1.1% in July and 0.5% in August, according to a Labor Department report this month.
During the same period, the supply of workers has risen closer to demand, with unemployment increasing to 3.8% in August from 3.6% in June.
As many private-sector economists predict a mild recession beginning as early as the fourth quarter, 45% of employers identified “economic uncertainty” as the primary reason for slowing annual salary increases, Mercer said.
Thirty-four percent of companies said their financial performance was a factor in reducing salary increases, while 33% noted that turnover pressures have eased, Mercer said.
Indeed, the quits rate, or the number of workers who left their jobs as a percent of total employment, fell to 2.3% in July from 2.8% in August 2022, according to the Labor Department.
“As the labor market has started to cool, so have worker expectations, which has taken some pressure off employers,” Mason said in an email response to questions.
Lower-wage workers will probably still switch jobs at a comparatively high level, Mason said.
“We’ll continue to see migration in this workforce as workers find other opportunities to increase their pay, in order to increase their compensation, and ultimately, their financial security,” she said, adding “their needs for greater financial security remain extremely high.”
Health care companies plan to boost budgets for merit increases by just 3.1% as they recover from pandemic-induced financial strains, Mercer said. Companies providing consumer goods, energy or insurance intend to set aside 3.7% more for merit increases in 2024 compared with the 3.5% average for all industries.
Although smaller than 2023, the projected increase in budgets for salaries next year would exceed by 0.1 percentage point the 3.8% gain in 2022, Mercer said. It noted that 85% of employers said they are just in the preliminary stage of budgeting.
Mercer surveyed more than 900 companies across 15 industries between July 31 and Aug. 11.
