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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 manufacturing1 compares to the overall averages and stacks up with what you are planning for next year.
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. While Consumer Goods is on the higher end, with a projected merit increase budget of 3.6%, Other Manufacturing is lower, budgeting 3.4%.
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.
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:
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.
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. Other Manufacturing is budgeting slightly higher at 1.2% .
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. Consumer goods showed an even higher base salary change, 4.9%, as did Other Manufacturing at 5.3%.
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.
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%. Consumer Goods and Other Manufacturing are both planning on a higher adjustment to their structures, planning for 3.3% and 3.2%, respectively.
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:
2 Consumer Goods did not provide enough data to report the promotional budget.
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%).
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 firstname.lastname@example.org.
1Throughout this article, “manufacturing” is represented by the “Consumer Goods” and “Other Manufacturing” cuts from the 2023 US Compensation Planning Survey