Results of the 2023 Mercer QuickPulse™ - US Compensation Planning Survey and how healthcare compares
Here we are! It’s the end of 2023 and we have one more look at what employers are forecasting for salary increase budgets for 2024. In addition, we have insights to share on promotions, off-cycle increases, salary structure adjustments, and some hot topics, such as pay transparency.
Take a peek and see how healthcare1 compares to the overall averages and stacks up with what you are planning for next year.
Merit and total increase budgets
Overall, both merit and total increase budgets are relatively unchanged from the last time we conducted the US Compensation Planning survey in August of this year.
On average, the more than 900 participants in the US are forecasting 3.5% merit increase budgets and 3.8% total increase budgets. Only the total increase budget changed from earlier in the year, decreasing from 3.9%.
When comparing industries, there are some differences. Healthcare continues to project increase budgets that are below the average, at 3.1% for merit increases and 3.4 % for total increases. Those industries projecting above the overall average are Insurance/Reinsurance and Services (Non-financial), at 3.7% for merit increases.
With 49% of companies still reporting that their budget status is “preliminary,” it’s quite possible that we could see actual increases lower than projected when we survey again in Q1 of 2024.
What’s important is that you take this information, along with other reputable sources, and determine what’s right for your company. Your annual increase budget should make sense for your industry, desired competitive positioning, financial outlook, etc. Additionally, ensure that your budget includes funds for any adjustments needed to realign particular jobs or employees to mitigate pay compression or any necessary market adjustments.
Manager discretion for merit distribution
A question that comes up from time to time, particularly when you are revising your total rewards strategy, is “How much discretion should managers have when it comes to delivering merit increases?” or other pay adjustments.
To take a pulse check on where employers are with empowering managers to make pay decisions, we asked, “What limitations or rules do managers have when it comes to the determination of an individual's base salary increase?”
It seems that the most prevalent rules that managers must work within:
- Fall within the overall budget
- Fall within the salary range
- Fall into a recommended range provided based on select factors (e.g., position in range and performance)
- Incorporate increases determined by compensation (e.g., market adjustments or pay equity adjustments)
- Not exceed designated caps for pay increase
On the other hand, 1% of companies (about 9) said that they allow managers ultimate discretion when it comes to the increase, with no limitations. Another group of respondents said that “everyone receives the same increase” (about 3%) and others stated that merit increases were formulaic (about 6%).
How does that compare to the annual increase guidelines you are providing for your managers? Perhaps with more education and confidence to talk about pay, your managers could be given more discretion.
Promotion practices
Although not much has changed recently in promotion practices, it warrants consideration because promotions and career development play such a significant role in the employee experience and total rewards strategy.
Employers on average are planning to promote a little less than 10% of their workforce in 2024. On average, employees can expect to see a 9.2% pay increase for a one-level promotion.
Half of employers are managing promotions through their existing salary and wages budget, or some other expense process. Just under 1 in 4 companies have a standalone promotion budget and are planning an average of 1.1% to cover the increase in salaries due to promotions. Healthcare, contrary to the rest of their budgeting, is planning on average to spend 1.8% of salary budget on promotions.
Off-cycle increases
As we’ve seen in the last couple of compensation planning reports, employers’ use of off-cycle increases has slowed, but not disappeared. Per capita base salary changes, found by comparing the average per person base salary change over a period of time, shows that pay has moved on average 4.6%, which is larger than what was reported as the actual increase delivered in March of 2023: 3.8% merit and 4.1% total increases. In Healthcare, that per capita change is below the national average, at 4.1%, but still larger than what they reported as actual increases in March of 2023.
Approximately half of employers reported that they have provided or will provide off-cycle increases in 2023, citing retention concerns, internal equity, and market adjustments as the most common reasons for doing so.
While two-thirds of companies don’t budget for off-cycle increases, most do have an extensive approval process that typically involves several levels of line management as well as Human Resources and Compensation.
Salary structures
For the 87% of employers who utilize a formal salary structure, 3 out of 4 adjust the structures annually. Another 8% adjust them every 2 years.
Of those who plan to adjust their structure in 2024, the average projected salary structure increase is 2.9%. Healthcare plans a similar, yet lower, adjustment at 2.7%.
Sharing salary ranges
We know that employers are having to be more transparent about their pay levels, whether because they are required by law or as a voluntary act to build trust among employees. Beyond where legally required, 28% of employers are including salary ranges in job postings nationally with another 10% planning to do so.
But what exactly are they sharing? If you take a look at job posting boards like Indeed, it’s obvious that what’s being shared is not consistent. When looking at a particular job, what’s shared as the pay range varies widely.
Employers in the US Compensation Planning Survey reported that they most commonly are using the following in job postings:
- National, market-based pay range, regardless of (job) location
- Geographically adjusted pay range, based on location of job posting
- Subset of the pay range (e.g., do not disclose the full maximum of the salary range)
Addressing compression and internal equity
Increased pressure to be more transparent about pay means that employers have to prioritize addressing pay compression and internal equity issues. Only 17% of the 951 survey respondents reported that they have not experienced compression or internal equity issues; another 18% stated they “don’t know” or are “unsure.” The remaining respondents stated that they have done the analysis and are making adjustments (36%), that they will make adjustments outside the annual increase cycle (11%), or that they plan to address in 2024 (17%).
Timely insights direct to you
Does any of this come as a surprise to you? Or, perhaps it differs dramatically from what your organization is planning for 2024? As you know, what’s important is that you understand what your competitors are doing and then make decisions that are right for your unique circumstances.
Sign up today to be notified when the next Compensation Planning Survey opens — participants receive the results at no cost. Looking for other Mercer insights to help you plan for 2024? Give us a call at 855-286-5302 or email one of our associates at surveys@mercer.com.
1Throughout this article, “healthcare” reflects the “Health Care Services” cut from the 2023 US Compensation Planning Survey