Almost half (47%) of surveyed U.S. businesses report that their salary budgets for the 2024 cycle are lower than the previous year, as the overall median pay raise for 2024 fell to 4.1%, compared with 4.5% in 2023.
Employers are budgeting for even smaller raises (3.9%) in 2025, according to the Salary Budget Planning Report released last week by Willis Towers Watson (WTC), a global advisory, broking and solutions company.
“As the workplace stabilizes and employers look more toward the future, companies are reviewing and updating their compensation philosophies to ensure they align with business strategy,” said Lesli Jennings of WTW.
The report found employers are being more conservative with their salary budgets as they anticipate lower demand resulting in longer-term stability in their employee base following a period of high resignation and turnover. While around two-fifths of employers (38%) report having trouble attracting and retaining talent in 2024, this figure has dropped almost 20 percentage points from two years ago (57%).
In addition, total annual payroll expenses (which include salaries, bonuses, variable pay and benefit costs) continue to rise substantially in the U.S., as a majority (73%) of companies report that their total payroll expense was higher than last year.
Inflation can impact salary budgets in both directions. Those organizations that lowered salary budgets cited concerns related to cost management, weaker financial results and inflationary pressures as the leading causes, whereas those that raised salary budgets this year cited inflationary pressures and a tight labor market.
Considering these issues, companies are looking to make longer-term changes to their compensation programs. Over half (51%) of companies that have made changes to compensation programs or workplace flexibility have undertaken a compensation review for specific groups; almost half (49%) are hiring people at higher salaries, and 45% have undertaken a full compensation review of all employees.
Additionally, organizations are taking actions to address current market conditions and employee needs, particularly providing more workplace flexibility (52%) and improving the employee experience (52%).
“In light of cost management concerns, employers are taking more of a holistic approach to their reward programs, factoring in bonuses, long-term incentives, and health and wellness benefits; however, a more targeted review of specific employee groups could allow for greater support for those with in-demand skills or those in lower salary ranges,” Jennings said.
“Pay equity is top of mind for employers, and giving a big-picture view of what employees are offered ensures the salary increase process is clear and emphasizes the connection to business performance,” added Jennings.
About the survey
The Salary Budget Planning Report is compiled by WTW’s Rewards Data Intelligence practice. The survey was conducted from April to June of 2024. Approximately 32,000 responses were received from companies across 168 countries worldwide. In the U.S., 1,888 organizations responded.
