2023-24 compensation outlook: Salary budgets, raises and more

As we enter the second half of 2023, it’s time for many to begin planning salary budgets and other considerations for 2024. 

Economic uncertainty and labor shortages that have plagued the last few years have left employers scrambling to stay competitive to keep top talent while boosting the company’s financial health. 

These issues leave many to wonder: How will budgets and compensation be impacted for 2024? Here are three early compensation trends for 2024 salary budgets to help you get a head start.

Raises & salary budgets

With economic turbulence plaguing the first half of 2023, it may come as a surprise that more than three-fourths of U.S. companies plan to increase salaries the same as or more than this year, a recent salary budget survey by Payscale found.

Additionally, pay is expected to rise 3.8%, compared to 4% in 2023.

This echoes the findings of an earlier WTW survey, which found that organizations are budgeting an average increase of 4% in 2024. That’s down from 2023, which saw an actual increase of 4.4%, but higher than increases in salary budgets from previous years.

As the labor market cools, however, Payscale’s survey found that 22% of companies are planning to cut their salary increase budget next year, significantly higher than 9% of companies in 2023.

What’s driving it

For those who said their 2024 salary increase budget is expected to be higher than 2023, respondents cited: 

• Increased competition for labor or labor supply shortage (65%)
• Change in compensation philosophy or competitive positioning (34%), and
• Improved economic conditions or improved business performance (27%).

For those who expected their budget to be lower than 2023, they cited:

• Prior year increases that were higher than usual (77%), and
• Concern about future economic conditions or business performance (44%). 

WTW’s recent survey found similar results when it asked why salary budgets were changing, with some citing: 

• Concerns over a tighter labor market impacted by worker shortages (61%)
• Inflationary pressures (60%) 
• Shifting employee expectations (24%)
• Anticipated recession or weaker financial results (23%), and 
• Cost management (20%).

Beyond compensation

In a race to snatch up the most competitive talent, compensation is an important part of the puzzle – but it’s not the only piece. 

WTW’s survey also found that employers are utilizing non-monetary benefits to attract and retain top talent. More than half (59%) of respondents reported an increased emphasis on diversity, equity and inclusion, and 58% reported increasing workplace flexibility. Other actions employers are taking include:

• Changing health and wellness benefits
• Modifying rewards and compensation packages, and
• Increased training opportunities.