Salary Increases 2024

As leaders consider their organization’s 2024 budget, many leaders are asking, “How much should we budget for pay increases?”

The answer is different for each organization and includes the analysis of multiple variables important for your organization, industry, and geographic location. This article explores some relevant reports and trends to assist you in determining your organization’s plan.

Inflation slows for the tenth consecutive month; The U.S. Bureau of Labor statistics (BLS) reports that the consumer price index (CPI) rose 4.9% year over year in April. The Federal Reserve’s goal for inflation is 2% over the long term.

 It is interesting that the Employment Cost Index Summary reported that wages and salaries for the 12-month period ending in March 2023 increased for private employers by 5.1% and increased for public employers by 4.7%.

Economic Research Institute’s (ERI) National Compensation Forecast – April 2023 reported that the past year’s wage growth rate is 4.51%. For comparison, the 20-year historical annual wage growth rate is 2.53%. 

Most organizations pay based on the cost of labor, which is basically the wage that a person is willing to accept to perform the work. This cost of labor is different than the cost of living, which is the cost of maintaining a certain standard of living in a location. ERI provides an explanation of the difference between the two terms.

Many families and individuals are working in low-wage jobs and make less than the amount needed to meet the minimum standards of living in their community. MIT has developed a Living Wage Calculator that you can use to evaluate if your employee’s pay is above the minimum for your community.

In ERI’s April 2023 Compensation Trends Webinar, Jonas Johnson, Ph.D. reported that the projection for 2023 includes a 2023 annual projected increase (budget) of 3.79% with a projected increase in (structure) of 2.91%. He explained that the structure was the increase to the market mid-point for a position within the organization’s salary structure. The budgeted increase is the overall increase in wage levels which can be a combination of market and tenure increases.

The national unemployment rate is relatively steady at 3.4% and the labor force participation rate of 62.6% is slightly below the pre-pandemic February 2020 level of 63.3%. Johnson commented that the labor force is at full employment, which means that there are positions available for a person who is looking to work. In Idaho, the unemployment rate is at 2.6%. Generally low unemployment has upward pressure on overall compensation levels. Recruiters are actively pursuing people who are employed because there is a shortage of passive job applicants. Organizations are evaluating their compensation levels to both retain and recruit qualified candidates because of the tight labor market.

There are recent news articles (Layoffs-2023; tech-layoffs; may-layoffs-companies -making-cuts) about organizations restructuring their workforce. These layoffs could put downward pressure on future compensation trends. There may be a mismatch between the skills of the people who are becoming unemployed and the positions that are opening.

Johnson commented that after experiencing a period of high compensation growth we may be returning to more normal compensation growth trends. I interpreted this comment to mean that the 2024 budgeted annual increase in salary will be less than 3.79%, with a projected increase in structure of less than 2.91%.

Many organizations for a variety of reasons have historically paid an amount lower than the market for their positions. It is my experience that these organizations are increasing their salary structure at rates higher than the average to catch up to their competitors. The data shows a decline in public-sector employment, which is requiring public sector employers to increase pay at higher than historical rates. It is widely reported that the White House is considering proposing a 5.2% increase in federal employee pay for 2024.

Determining a budget for an annual compensation increase is a challenging task in today’s uncertain environment. I urge your organization’s leadership team to start the conversation around salary planning earlier than usual.

To learn more about your compensation strategy, please contact our AmeriBen Human Resource Consulting Resource Center Hotline at 1-888-716-4482 or e-mail us at resourcecenter@ameriben.com.