According to new research from Mercer, an HR consulting firm, it might be time to adjust your expectations if you are considering a big raise or promotion this year. Companies aim to cut back on raises and promotions amid cooling inflation and a stabilizing job market.
US businesses' total salary budgets, covering all pay increases, including raises and promotions, will average 3.6%, down from 4.1% in 2023, drawn from over 1,000 US organizations in 15 industries. Employers are also scaling back on promotions, with 10.3% of organizations' workforce promoted in 2023 while only planning to promote 8% in 2024.
Mercer's report does not provide a specific explanation for the decrease in raises and promotions. Still, Michael Citron, a principal and compensation and rewards consultant at Mercer, tells CNBC Make It that conversations with clients indicate a broader sense of economic uncertainty as a contributing factor.
Companies are Resetting Employee Expectations
US employers are allocating more salary increases despite the decrease in raises and promotions following the 2008 financial crisis, where a typical 3% annual raise will be increased to 4% this year, according to recent research from Willis Towers Watson, a consulting firm.
Compensation budgets are gradually returning to pre-pandemic levels, which brings welcome relief from the wage pressures experienced by companies during the great resignation. Workers resigned from their jobs at record rates in 2021 and 2022, motivated by higher pay and abundant job opportunities, according to Lauren Mason, Mercer's US workforce solutions and innovation leader.
Stagnant salaries are also a result of a necessary adjustment following the surge in compensation during the great resignation period when hiring managers faced challenges in filling roles, says Julia Pollak, the chief economist at ZipRecruiter. Companies are now shifting towards cost-cutting measures due to lingering worries about a potential recession and reduced competition for talent. This leads employers to redirect their efforts towards other benefits and programs to retain workers instead of focusing on raises and promotions.
Keeping Employees Happy Without Any Raise or Promotions
According to Mercer's research, 62% of organizations intend to provide off-cycle salary increases to employees, which are additional compensations that are not tied to annual performance reviews to retain talent. Other organizations prioritize non-monetary rewards and employee benefits to sustain morale and engagement, such as student loan assistance, mental health stipends, and professional development programs.
Companies should not depend solely on pay raises or promotions to motivate employees. Instead, investing in training programs and offering small perks such as flexible hours or additional paid time off can significantly enhance job satisfaction and retention. He also acknowledges that there will be years when promoting many employees or providing substantial wage increases might not be feasible even if you want to. However, he emphasizes the importance of considering alternative methods to motivate and support employees during such times.
