2023 was another turbulent year in the hiring market. Staff turnover remained high across the board, with some industries facing an unfortunate need to implement cuts. Meanwhile, most employees felt the effects of rampant inflation, which outpaced 2023’s record salary increases.
Compensation planning isn’t easy in times like these, which is why it’s so important to study trends and look at what’s coming down the line.
So, what are the trends that might impact salaries, benefits and hiring in 2024? Let’s look at what we know so far.
7 compensation trends to watch in 2024
In general terms, 2024 will be a year of rebalancing. Post-pandemic, we saw a great deal of disruption to internal salary structures, which made it harder for employers to attract, engage and retain great staff. In 2024, there will be a greater effort to balance budgets and restore compensation philosophies. Here are the main trends affecting this right now:
1. Salary growth will cool down
In 2023, salaries increased by an average of 4.4% across all industries, with exempt salaried employees seeing a slightly higher increase of 4.5%. This increase was much higher than previous average increases, which may have put pressure on overall labor budgets.
Most experts agree that the average increase will fall in 2024, although predictions vary between sources:
- World at Work predicts average 4.1% pay increases
- SHRM predicts 4.0%
- Payscale estimates a 3.8% increase
- Mercer says 3.5%
There’s a significant gap between these predictions, but everyone seems in agreement that the labor market will trend toward more modest pay increases in 2024.
2. Higher starting salaries are leading to pay compression
Employers have been offering above-market average starting salaries in recent years, especially when recruiting for hard-to-fill positions. This tactic can disrupt your internal salary structure, leading to a situation where junior salaries are not that different from more senior roles. It can also lead to less tenured employees making more than tenured peers.
This issue is known as pay compression and it became a serious problem in 2023. Around 30% of employers say that they plan to increase salaries in 2024 to tackle pay compression and restore their base salary ranges. For everyone else, it’s an important reminder of the need for a good compensation philosophy.
3. Variable pay is above projections
Bonuses are a crucial part of engagement and retention, especially for your best performers. These types of bonuses can include short-term incentives (such as performance or retention bonuses) and long-term rewards (bonuses tied to key strategic goals). In compensation terms, these bonuses are known as “variable pay” because the total cost can change depending on circumstances.
In 2023, variable pay was above projections. According to NFP’s webinar on salary budgeting, salaried employees were budgeted for 13.2% variable pay but received 14.6% (excluding sales commission). Executives were expected to receive 37.4% but earned 40.1%. It’s an important reminder to consider above-average variable pay when planning your 2024 budget.
4. Employees are concerned about external factors
Official inflation data suggests that prices are coming down, but that may not reflect the real-life experience of employees. On a day-to-day level, people still see high prices and struggle with the cost of living. As a result, many may feel that they are underpaid.
On top of that, employees are seeing some of their peers experience significant wage increases, especially in the public sector. Federal workers are poised to receive a 5.2% increase, which can make private sector increases seem less generous. This could lead to lower engagement and even cause increased staff turnover.
5. Labor negotiations are becoming more common
2023 saw a nationwide rise in union activity, most notably in Hollywood where unions like SAG-AFTRA led a high-profile strike. The auto industry has also been in extensive negotiations with United Auto Workers, whose members are campaigning for substantial salary increases and pay equity.
This trend toward labor negotiations may affect all businesses in 2024, including non-union companies. The best approach here is to be proactive and speak to your employees about their total rewards offering. Remember: most employees won’t go on strike if they’re unhappy with their compensation. They will simply look for a better opportunity elsewhere.
6. Market matching is the biggest driver of increases
Market forces will be the driving force behind most salary increases in 2024. Around 80% of businesses expect to increase their compensation spending to keep up with market averages. The level of increase will depend on broader market trends.
Internal pay equity is another major factor, as some existing salary structures may not reflect each employer’s DE&I values. Around 50% of businesses made equity-related increases in 2023, and this is projected to rise to 58% in 2024. Some businesses (33%) are also planning increases related to upskilling and staff retention.
7. Pay transparency is becoming more common
Ten states now have pay transparency requirements, with state and local administrations introducing their own rules. On top of that, online resources such as Glassdoor, LinkedIn and Paylocity publish compensation data for most employers—and this data is sometimes based on unreliable estimates.
Many employers are choosing to be proactive about pay transparency and share salary data with their teams. However, this can lead to some awkward conversations, especially if there’s some inequity in your pay structure. Another reason it’s important to have a clear compensation philosophy and conduct regular pay audits.
Need help with compensation strategy in 2024?
Compensation strategy is a difficult balancing act, especially in these uncertain times. Employers need to attract, engage, and retain top talent—but you also need to balance your labor budget.
The best path is to have a clear compensation policy and a dynamic Total Rewards strategy that leverages healthcare and wellness benefits, professional development, recognition, and remote work arrangements. If you are responsible for compensation in your organization, we've put together an email memo template you can use internally for your salary planning with the latest market trends.
[Download a 2024 Budget Planning Email Memo Template]
It’s hard, putting it all together into a strategy that works. If you need some guidance, book a call with one of Helios HR’s compensation experts. We’ll help you find a solution that works for your employees—and for your business.
