Toward the end of 2023 Mercer, along with other companies, released their compensation planning reports with the final look at what employers were budgeting for annual increases, both merit and total rewards. Additionally, the report included planned structure adjustments and thoughts on a variety of pay practices and payouts. But, come Q1 in 2024, what exactly happened? Did employers stick to their projected budgets? It’s time to find out.

Actual increases lower than projected

In November of 2023 the projected average national merit increase budget was reported as 3.1% and the average total increase budget was 3.6%. Now, in March, the average merit increase that was delivered is 3.2%, with 3.5% total increases reported across the more than 430 participating organizations. While still higher than before the pandemic, and above inflation, increases are continuing to trend downward.

Several industries did provide average merit increases above 3.2%. Some of the highest include:

• Mining & Metals – 3.9%
• Consumer Goods, Insurance/Re-insurance, and Life Sciences – 3.5%

A few, including High Tech and Retail & Wholesale were well below, only providing 2.6% and 2.8% average merit increase (including zeros), respectively.

Smaller promotions

Compared to what they reported in 2023, employers are planning to promote a slightly smaller percentage of employees in 2024 – 8.0% on average of all employees versus 8.1% the prior year. However, the base pay increase they plan for a one-level promotion is higher than last year, at all levels. Perhaps that will actually lead to higher spending on promotions than in years past.

Off-cycle increases

They are still happening – 48% of respondents indicate they are giving off-cycle increases on an as-needed basis for a variety of reasons including. but not limited to: promotions, retention concerns, internal equity, and market adjustments. Also notable, is the fact that the off-cycle increase spend is highest for the hourly population (0.9% on average as compared to 0.8% for non-executive salaried employees and 0.6% for executives).

Only 15% of employers have a dedicated time during the year for off-cycle increases and most commonly they are funded at the BU/Department level, through their business/departmental budgets.

Incentive awards

Short-term incentive payouts for 2023 performance were very similar to those from the prior year. Both years saw a very small percentage paying more than 150% of target and about close to half paying from within 10% of target up to 150%.

Likewise, the LTI plan payout versus target was similar this year to last.

Salary structures

Formal salary structures still reign as the dominant way of managing pay. Now that the dust has settled around working from home, returning to the office, and hybrid work employers reported that 41% of organizations that operate in multiple locations use a national approach to pay (vs. implementing geographic differentials). Typically, those that use geographic differentials have a national salary structure for all employees (72%), with geographic variations of the structure to account for locations with varying costs of labor.

The average salary structure adjustment for 2024 across different employee levels was 2.8%, but 1.8% including zeros. As you would expect, there are significant differences by industry.

Future projections

Some companies are already asking about pay increase projections for 2025. However, knowing that the majority of companies don’t even start thinking about their annual increase planning until the fall, we will be getting a ‘first look’ at budget projections for 2025 through our Compensation Planning Pulse Survey in late July, with another survey in mid to late October. Prior to that we will be running another Mercer QuickPulse™ Survey that will collect information on and provide valuable insights on a hot topic. Stay tuned!

Sign up here to be notified when the next survey opens.