'Going into 2024, we are seeing a softening, a cooling off'
“In many ways, all bets are off,” says Liz Supinski, director of research and insights at WorldatWork, in discussing compensation outlooks for 2024.
“There's a lot of caution and concern about the economy,” she says, along with “acknowledgement of continued labour pressure.”
There’s increasingly talk that any economic downturn will have a soft landing or “be a new variety of recession that won't have the high level of job loss that we've seen in past recessions,” says Supinski, “so I think there's not a lot of sense that there's going to be a big relief from labour market pressures.”
Also notable? What employers are going to pay in 2024 will depend on what their strategy was during 2023, says Ruth Thomas, chief product evangelist and pay equity strategist at Payscale.
“There are many employers who did do larger increases in 2023, because they were focusing on talent retention. And then there are obviously those that maybe didn't do as large increases and recognize they've had retention issues this year. And so they know that they're going to have to keep strong increases going into 2024.”
Salary increase forecasts for 2024
The WorldatWork survey in 18 countries heard from 4,821 submissions and closed in June 2023. It found that concerns over a tighter labour market affected by worker shortages was the most common driver influencing changes in 2023, cited by 61% of respondents expecting changes in their salary budgets, followed closely by inflationary pressures at 60%.
For Canada, the total salary budget increases were 4% in 2023, both for median and mean; for 2024, respondents are predicting 3.8% for both.
However, there’s also a sense that as markets soften, there will be some relief, says Supinski.
“We're seeing that projections for 2024 both in the U.S. and Canada are at the level that we saw actual budgets in 2022 and that people were projecting for 2023 and 2022. So, a little bit of a retreat from this year's high.”
Payscale, on the other hand, is predicting salary increase budgets of 3.6% for 2024 in Canada – compared to an actual of 3.7% in 2023.
“The trend that most of the surveys are seeing is that people ended up paying more potentially than they expected in 2023,” says Thomas, citing a strong market and the great resignation in 2022.
“Probably that was about the real height of the cost of living crisis as well, [which] was impacting people's mindsets when they were setting budgets,” she says.
“But going into 2024, we are seeing a softening… economic indicators elsewhere are definitely showing we're starting to see a cooling off now. But it's taken the whole year to get there.”
Some people may think that's strange, because of press coverage about potential layoffs or headcount freezes, says Thomas, “but... all those indicators are still showing that there's still rising unemployment in Canada… and it’s still actually a relatively tight labour market. So I think that's reflective of that.”
The proportion of organizations expecting their salary budgets in 2024 to either increase or stay the same as last year is 78% in the United States and 81% in Canada — “a testament to the competitive labour market of the past few years and the high expectations workers have for raises against inflation,” said a Payscale release.
The percentage of organizations expecting to lower salary increase budgets in 2024 has gone up from 9% to 22%, said Payscale, whose survey heard from 1,757 participating employers across the U.S., Canada and 14 international locations.
‘Fairly substantial’ salary increases
Also predicting an average increase of 3.6% is Normandin Beaudry’s survey of close to 700 organizations. This compares to actual increases of 4.1% in 2023, exceeding the initial projections of 3.8% and 4.2% published in February 2022 and July 2023, respectively.
“There's still a lot of runway in terms of what can happen in the market. And these projections can go anywhere,” says Darcy Clark, senior principal at Normandin Beaudry in Toronto.
“But we're looking at a roughly half-percent tickdown on expectations relative to last year on increases, which is pretty significant for a 12-month period.”
There are market indicators to consider, he says, such as the GDP and inflation starting to slow down, along with low unemployment, “so that pressure that everybody is feeling is easing off a little bit,” he says.
“I don't think we’re projecting a recession, but we're not looking at boomtime right now from a market perspective…. This is our best foot forward as our first projection because there's still lots of pressures on the market and labour shortages. But reality will set in and I think we'll come in a little bit lower.”
Additional budget increases for 2024
In 2023, nearly half of organizations allocated an average additional budget of 1.3% on top of their usual salary increase budget, found Normandin Beaudry's survey, which shows that 43% of Canadian organizations plan to grant an average additional budget of 1% for the coming year.
Organizations are planning on using these additional funds to:
- Make market adjustments (75%)
- Retain employees in strategic or critical roles (58%)
- Differentiate rewards for high performers (55%)
- Retain employees with a perceived retention risk (46%)
- Address compression and internal equity challenges (40%)
- Accelerate the progression of employees in the lower end of their pay range (39%)
- Grant off-cycle salary increases (24%)
If an employer had significant budgets in the last two cycles, this is cycle three of those abnormalities, says Clark, “so if you've been swinging for the fences for the last couple of years, you might have a little bit of maintenance to do across different segments of your workforce.”
A lot of organizations responded to inflationary pressures last year, and put some of that budget aside, or towards more of their lower earners, he says.
“If you think about the impact of inflation, senior managers and executives were all impacted, but not to the degree of somebody who's making $40,000; when the groceries go up, it's more significant. So money has been funneled towards more to support lower levels and their frameworks.”
But it’s definitely a struggle for HR and employers, whether it's 3.5% or 4%, says Clark.
“How do you differentiate for performers? You'd want to allocate more to your high performers, but that comes at a cost — it has to come from somewhere, right? So it's balancing... your budget, how do you allocate that? It's never enough.”
Salary forecasts by sector, region
For 2024, the following sectors have higher-than-average salary budget increases, according to Normandin Beaudry:
- Professional, scientific and technical services: 3.9%
- Real estate, rental and leasing: 3.9%
- High technology: 3.9%
- Pharmaceutical and biotechnology: 3.8%
- Durable goods manufacturing: 3.8%
- Accommodation and food services: 3.7%
Payscale’s survey also revealed several sectors predicting payouts over 4%, including energy and utilities, retail and customer service, engineering and science, and food, beverage and hospitality, says Thomas.
“They were the four sectors that are trending higher. So we're showing an average overall 3.6% for Canada, but they are all showing an average of 4% or more. So there's still strong increases there.”
Recently, there have been much bigger differences in pay between sectors, she says, “because of the extreme impact that the pandemic had on certain sectors. Like, tech went crazy in the pandemic and sectors like retail suffered more. So it's a very different world when it comes to predicting pay trends than it was potentially pre-pandemic when we were able to make greater generalizations.”
Regionally, Quebec, Ontario, British Columbia and Yukon reported 2024 projections that were above or equal to the national average of 3.6%, found Normandin Beaudry, while the other provinces and territories projected increase budgets that are slightly below the national average.
There’s roughly a difference of 0.2% between the markets, says Clark, “so it's pretty homogenous, in terms of what people are thinking across the country.”
Salary transparency leads to changes
Underlaying a lot of the forecasts is the growing issue of pay transparency, as governments push for greater insights from employers.
With legislation rolling out in different jurisdictions such as B.C. and P.E.I., employers should be prepared, according to Clark.
“It's coming to every market. And companies can read the room. So if you're going to be more transparent about posting a job — ‘Here's the salary range’ — you have to make sure that your house is in order to some degree before you start doing that, because employees will look,” he says.
“You want to make sure that you have a good salary structure, good organization on your job hierarchy and can defend why jobs are at certain levels and why they're in certain salary ranges — some well-thought-out rationale that you could descend to employees when you start to have to become more transparent.”
And some employees are asking for this transparency, he says, “so companies are also responding just from a market perspective, not a legislative perspective — it's kind of a combination of both.”
Pay transparency is one of the drivers in the U.S., in a number of number of states and cities, with employers required to post hiring ranges, says Supinski.
“This has caused a lot of organizations to do some reckoning with how they're paying also, because once that information is public, if you've got a problem with pay compression, you're likely to have to address it — people are going to know.”
It can put a damper on compensation plans, she says.
“Yes, you've got to have talent, but you can’t just, as an organization, say, ‘There’s no upper limit on this’ — you've got to rein it in at some point. And make some hard choices.”
As a result, there’s been a bit of “softening,” says Supinski, particularly in the IT area where competition was heavily driving salaries.
“With some of the layoffs, the big tech firms have definitely cooled that arms race for salaries a little bit.”
If you're putting out a job advert with salary information, and your current incumbents are making significantly than what’s been offered, that's a significant retention issue, says Thomas.
“We know a lot of people this year have spent time and effort reviewing their compensation pay ranges and bands and adjusting them and making payments to address inequities against those,” she says.
“It'll be interesting to see potentially those who may have larger pay budgets going into this merit cycle that may be reflective of the fact that they are doing those internal equity adjustments in response to getting the house in order relative to the requirements of the pay transparency legislation.”
