Tips for 2024 Salary Increase Planning

As companies finalize their salary increase budgets for 2024, they are finding a different job market than a year ago. Employee turnover is down in many countries along with hiring activity. These factors, combined with macroeconomic conditions, such as lower inflation and slower hiring activity, influence how much and where companies allocate their salary increase budgets.

“We’re seeing mixed salary increase budgets for 2024 compared to what companies paid out in 2023. Actual practice should ensure that well-performing employees are appropriately paid relative to the competitive labor market,” says Tim Brown, a partner in Aon’s Talent Solutions practice.

More than 2,100 organizations participated in second edition of Aon’s 2023 Salary Increase and Turnover Study, released in October 2023. The data provides key trends and insights into the state of salary increases and retention across the globe.

Better Informed

Companies are reporting fairly consistent salary increase budgets for 2024 compared to 2023 actual salary increases, but there are differences. Companies in Denmark, Germany, Singapore and the United Arab Emirates are reporting budgets slightly larger than 2023 salary increase payouts. On the other side, companies in Columbia, Mexico, Spain, the United Kingdom (UK) and the United States (U.S.) are reporting budgets that are slightly lower than 2023 payouts.

“With larger budgets than in years past, I’m glad to see more employers directing larger portions of increase budgets toward high performers; they are living a pay-for-performance culture and making the most of their salary increase budgets,” says Brown.

2024 vs. 2023 Salary Increase Budgets Across All Industries

Note: This is overall salary budget (including merit) and is undiluted (i.e., excludes companies that report zero for salary increase budget)

Slower Hiring and Turnover Reflect a Less Competitive Labor Market

Meanwhile, hiring in the U.S. has slowed in the past year. In 2022, a quarter of surveyed companies said they were aggressively hiring. This dropped to 8 percent in 2023. Only 3 percent of UK companies reported aggressive hiring in 2023.

A slowdown in hiring coincides with lower voluntary turnover, as shown in the table below. In the U.S., median voluntary turnover is 12.6 percent across all industries — a significant decline from 16.2 percent a year ago. In nearly every country analyzed, voluntary turnover is lower in 2023 compared to 2022.

Median Voluntary Turnover Across All Industries:

Better Advised

Think About Talent Strategy in a Softer Labor Market

While voluntary turnover is not as high as it was in 2022 during the so-called “Great Resignation,” it’s still a competitive labor market in many regions and industries. This is particularly true for jobs with certain skill requirements that are in high demand, including soft skills like communication and management, to hard skills such as AI and data science. Talent assessment is one tool to use to help identify, nurture and develop these skills among prospective and current employees without solely relying on compensation to retain people.

As many employees settle into their jobs and aren’t being lured by competitors, it’s a good opportunity for employers to focus on their retention and engagement strategy. Here are some tips to consider.

1. Create an evergreen employee value proposition (EVP) that resonates with all employees and is personalized to meet the needs of a diverse workforce.

Leverage data and insights to understand the needs of the organization’s people and customize recommendations, communications and targeted interventions to increase engagement with the EVP. “Think of the one thing you want to be known for as an employer and ask yourself if that comes out clearly in your EVP, your culture and your values,” says Adithi Jagannathan, a partner in the Talent Solutions practice and based in the UK.

2. Integrate wellbeing programs into HR programs more holistically.

For example, having a robust total rewards plan can also help address financial stress, improving an employee’s emotional wellbeing.

3. Communicate the firm’s promotion criteria and advancement potential to employees.

“Employees want to understand what their path for advancement is and what skills they need to move to the next level or a different role,” says Aria Glasgow, a partner in Aon’s Talent Solutions practice who is based in North America.

4. Consider ways to maximize return on people spend.

Is it clear what programs employees use and value the most? Also, it’s important to have a strategy that’s aligned to a firm’s compensation philosophy to help guide how salary increases are allocated. Salary increase budgets don’t change dramatically for most companies, so consider an approach where limited budgets have the most impact. Companies should ask themselves if they want to ring fence key talent, protect high performers or retain more junior employees to grow with the firm.

5. Communication determines pay.

As global pay transparency regulations continue to evolve, expect more questions from employees on compensation fundamentals like pay ranges, pay equity studies and performance management. Managers will need to be prepared and trained to have these conversations. “Similarly, boards and C-suite need to understand the potential cost of upwards pay pressure from existing staff that is likely to come off the back of pay transparency,” says Alex Cass, head of data solutions for Aon’s Talent Solutions practice who is based in the UK.

Learn more about participating or purchasing a copy of Aon’s Salary Increase and Turnover Study. To speak with someone from our rewards consulting team, please write to [email protected].