U.S. employers made bold moves this year on compensation, pushing salary increase budgets to a 20-year high, despite fears of resurgent inflation and recession, according to a WorldatWork survey released this week. But the momentum is expected to slow by next year.
Increases to salary budgets rose to 4.4% on average this year, slightly higher than earlier projections of 4.1%, and also marking the highest level since the 2001 peak of 4.5%, according to the survey of more than 2,000 U.S. employers. Last year, salary increase budgets stood at 4.1%.
A tight labor market and cautious economic optimism contributed to the increase, Liz Supinski, director of research and insights at WorldatWork, tells HRE.
“While there are still many concerns about recession, there is significant speculation among economists that we might achieve a soft landing,” Supinski says. “A number of economists are now speculating that we might see a novel kind of recession that is not accompanied by the large-scale job loss that we’ve seen in past recessions.”
But despite higher-than-expected salary increase budgets this year and more optimistic outlooks on the economy, budgets are expected to slightly drop next year, to 4.1%, according to the survey.
Supinski characterizes the shift as a migration back to what was seen as “normal”: 3%-3.5% salary increases that largely prevailed for most of the last 20 years, until 2022.
The forecasted 2024 decline, she adds, may also be the result of an easing of the intensity of the labor market pressures as the impact of economic policy decisions filters out.
This year, salary hikes were more impacted by labor market pressures than recessionary fears, though the increases were still moderate, she notes.
HR can address those labor market pressures by looking beyond base salaries.
“Variable pay continues to play an important role in compensation and allows organizations greater flexibility in responding to business and economic conditions than do base salary increases,” Supinski says. “So, [this] will continue to be a focus for many employers.”
Notable salary increase budgets around the world
WorldatWork’s report found higher-than-anticipated salary boosts around the world this year. In the United Kingdom, for instance, the average salary increase rose 4.5% compared with a projected 3.9%, according to the survey.
One country posting consistent growth in salary increase budgets was Mexico. In 2021, the average rose to 4.7%, then 5.7% the following year and last year jumped to 6.3%.
India, meanwhile, garnered the largest increase of the 18 countries where employers were surveyed. The average salary increase in India was a hefty 9.8% this year, bringing it closer to the pre-pandemic level of 9.9%. Last year, however, employers there doled out salary increases that averaged 10.1%.
Meanwhile, in the U.S., all states are expected to experience a decline in 2024, which is anticipated to range from a 0.1% drop in salary increase budgets in Arizona and California to a 0.4% fall in Alaska and North Dakota.
Related Link: What to know about salary trends in 2023
Layoffs may be even lower in 2024
In addition to salaries rising across the globe this year, employers are scaling back on layoffs, according to the WorldatWork survey.
This year, 70% of employers worldwide reported no layoffs and a whopping 91% expect the same for 2024, states WorldatWork in its report.
Related Link: 2023 looks to be a ‘banner year’ for salary increases
And in the U.S., 61% of employers report no layoffs this year and 87% have similar expectations for next year.
Despite that, Supinski cautions HR not to read too much into the numbers.
“It was a broad, exploratory question, intended mostly as a screener to identify what portion of organizations were repurposing savings from layoffs for salary budget increases,” she notes.