US companies raised their budgets for employee salary increases by an average of 4.4 percent in 2023. That’s the highest year-over-year growth since 2001. For 2024, they expect to grow their salary increase budgets by a further 4.1 percent—a small step down from 2023 but still well above the prepandemic trend of around 3.0 percent. That’s according to US Salary Increase Budgets 2023-2024, a new report from The Conference Board featuring comprehensive survey data on what firms across the economy are budgeting for annual increases in base pay. “The labor market, while still very tight, is loosening as openings gradually decline and fewer workers switch jobs than at any time since February 2020,” said Selcuk Eren, Senior Economist at The Conference Board. “In fact, a US recession now appears probable by early 2024, which will dampen competition for workers and relieve some pressure on salary increases. However, we expect this downturn to be short and shallow, with limited impact on the factors fueling higher wage growth.”Pay Growth Likely to Stay Elevated in 2024 Despite Slowdown
Among the report’s key findings:
Across industries and occupations, the average (mean) salary increase budget grew 4.4% in 2023. Median growth came in slightly lower at 4.0%.
- This reflects diverging trends between companies offering the lowest and highest pay increases.
- Companies at the 25th percentile budgeted salary increases of 3.5%—up from 3.0% in 2022. This closes what had been a widening gap with the 75th percentile, which largely held steady in 2023.
Growth in salary increase budgets is projected to decelerate to an average of 4.1% in 2024—with the range of projected increases narrowing further.
- A substantial pullback is expected among companies offering the highest annual salary increases—with the 75th percentile falling to 4.5% in 2024 versus 5.0% in 2023.
- By contrast, growth at the 25th percentile is expected to be unchanged at 3.5%—a sign that the structural factors pushing up wages will persist despite an anticipated growth slowdown that may lower the ceiling on the most generous pay raises.
Employers recognize the uncertainties ahead, after experiencing recruitment and retention difficulties over the last three years.
- While salary increase budgets are projected to rise, 59% of companies reported that their salary increase budgets are not yet firm in 2024—up 6 ppts from 2023.
- The impact of a recession to start 2024 is currently expected to be limited, as US GDP is still likely to grow 0.8% over the full year.
- Employers may lower budgets or delay increases if the outlook worsens.
Growth in salary increase budgets vary widely by industry and employee category in 2023.
- Industries reporting the largest median salary increases include energy/agriculture (4.7%) and consulting services (4.5%), with transportation (3.8%) seeing the smallest.
- Accounting for employee category, median 2023 salary increases are highest for nonexempt salaried employees in energy/agriculture (5.3%) and lowest for executives in financial services (3.5%).
Salary increase budgets alone do not tell the full story. Employers plan to continue using other levers to address recruitment and retention challenges in 2024.
- Beyond base pay increases, employers are using other vehicles to deliver competitive compensation. These include offering sign-on bonuses and retention awards—albeit at a reduced rate vs 2023.
- Companies plan to further expand the inclusion of employees in short-term incentive plans and increase investment in recognition programs.
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