Tracking 2023 salary budgets and setting expectations for 2024
Three percent. With salary increases in Asia, Europe and North America hovering around 2.5% to 3.0% for the last decade or so, that was the salary budget number that most HR and compensation professionals dreaded hearing every year. Then the story changed.
Tight labor markets, inflation, and employee attraction and retention concerns fueled 2022 increases to rates that hadn’t been seen in many HR and compensation professionals’ entire careers. Now, in 2023, average actual salary increases in the 15 largest economies have hit 5.4%, according to data from the July edition of WTW’s Salary Budget Planning Report, and pay professionals expect increases to remain high into 2024.
More than half of organizations (58%) reported higher salary budget increases this year compared to 2022 and 2021 actual numbers, according to the July report. For example, India’s salary budgets continued climbing, from 8.7% in 2021 to 9.8% in 2022 and, finally, 10.0% in 2023. Many other countries saw increase budgets ranging from 0.5 to 1 percentage point higher in 2023 than in 2022. See Figure 1.
This year’s actual increases weren’t far from what nearly half of respondents expected. In April and May 2023, when the July Salary Budget Planning Survey was fielded, 43% of participants said their salary budget increases were in line with what they projected in late 2022. At that time, the average projection stood at 5.5% in the 15 largest economies, compared to 2023 actual salary budgets of 5.4% (among those who granted increases at the time the survey was fielded). See Figure 2.
Among the organizations that reported higher 2023 actual salary budgets vs. 2023 projections, the most cited reasons were:
Respondents to the July survey expect 2024 budgets to be lower than 2023 actual increases – but still high in comparison to the past two-plus decades. The 15 largest economies are forecasting an average increase of 5.0% in 2024. Though only slightly lower than 2023’s 5.4% actual increase, it is aligned with the 5.0% average increase granted in 2022 and is a full 1 percentage point higher than 2021’s 4.0% actual increase.
Organizations with operations in Russia are forecasting salary increase budgets of 7.1% in 2024, which is 0.8 percentage points lower in 2024 than the 2023 average actual increase of 7.9%. Note: This data is from multinational organizations with operations in Russia; data from local Russian organizations was not collected for the July report.
Similarly, 2024 projections in the United Kingdom (4.4%), Germany (4.1%) and Spain (4.0%) are all lower than 2023 actual increases. Additionally, the United States is projecting a 2024 average increase of 4.0%, down from the 4.4% 2023 average actual increase – which was the highest increase since 2008 and well above 3.1% in 2021. It will be interesting to observe whether these nations maintain these levels. See Figure 3.
Though a less-than-1% increase in total compensation spend may seem small, these types of incremental increases can represent millions of dollars in investment. This makes it important for organizations to have a clear strategy for awarding pay increases as effectively as possible. It also means going beyond a one-size-fits-all approach to pay increases and considering factors such as:
If nothing else, the past three years have taught compensation and HR professionals to expect the unexpected – and there’s no reason to think things will revert to a more familiar and comfortable time. This makes it important for you to keep a level head while at the same time thinking two steps ahead to what may happen. You can’t respond to everything that will happen in the economy or labor market but equipping yourself with timely and trusted market data will put you in the best position to make informed and defensible decisions.
