Employers anticipate less money for raises and fewer promotions in 2024

US employers are planning to budget less for raises next year, according to recent data from consulting firm Mercer.

The August survey, which draws upon responses from more than 900 organizations, found employers are planning to allocate 3.5% of their compensation budgets to performance-based merit raises in 2024. That’s down from 3.8% for 2023.

Overall, employers are looking to allocate 3.9% of their compensation budgets to total salary increases for current employees, including not only merit raises, but also those given for promotions and cost-of-living adjustments. This projection is down from 4.1% in 2023, according to March data collected by Mercer.

Businesses are also planning to promote a smaller share of their workforce next year: 8.7% of their employee population, compared to 10.3% in 2023.

Cooler labor market, cooler raises. The cooling of compensation budgets is tied to the cooling of the labor market, Lauren Mason, a senior principal in Mercer’s career practice, told HR Brew.

At the height of the Great Resignation, when employees were quitting their jobs at historically high levels, HR departments used compensation as a lever to hold onto talent. Apple, for example, doled out up to $180,000 bonuses to some of its engineers in December 2021 to prevent them from defecting to rivals such as Meta.

But now that turnover rates have returned to pre-pandemic levels, this shift is “having a significant factor in what employers are budgeting because they are able to retain their staff more effectively,” Mason said.

This is particularly true for the tech industry, which is budgeting 3.3% for merit raises—lower than the national average of 3.5%, and “a reversal of historical trends where high-tech typically led increases across industries,” Mercer said in a statement.

“That’s also a reflection of the state of the industry in tech, and…a reaction to the overhiring that they did over the last two years,” Mason said.

Dialing up total rewards. Mason cautioned that it’s still early days in companies’ compensation budgeting cycles, and these numbers could shift depending on the volatility of the labor market. And even as employers are anticipating having less money on hand for raises next year, projections are still higher than pre-pandemic levels, when the share of compensation budgets dedicated to salary increases hovered around 3%, Mason said.

Still, if employers grant raises and promotions at the same level next year as they did in 2023, they’ll likely look to make up for it in other ways. Almost one-half of employers surveyed by Mercer said they were planning to revisit their total rewards strategy, according to an April survey, in the interest of attracting talent and improving retention.

Flexibility, manageable workloads, and time off “are areas that are highly valued by employees,” Mason said. “And while they may have some financial costs to employers, it’s not near the same level as compensation awards.”

Kate Bravery, global advisory and solutions leader with the consulting firm, echoed this in an email via PR rep Cassie Lenski. “Even though compensation is a huge part of the employee value proposition, employers can also consider rewarding employees in other ways,” she said, “such as providing more flexibility in their working schedule and paid time off, or expanding family planning benefits like access to IVF or specialized pregnancy benefits.”