Promotions and raises are going to be harder to get in 2024—here's why

If you're hoping to land a big raise or promotion this year, you might want to lower your expectations.

U.S. companies are planning to spend less on pay and title bumps in 2024 amidst a stabilizing job market and cooling inflation, according to new research from Mercer, an HR consulting firm.

Businesses' total salary budgets, which include money for all pay increases including raises and promotions, will be 3.6% in 2024, on average, down from the 4.1% paid out in 2023, Mercer reports. The firm's analysis is based on data from more than 1,000 U.S. organizations across 15 industries.

Employers are also pulling back on promotions. In 2023, organizations promoted 10.3% of their workforce; in 2024, they plan to promote only 8% of employees.

Mercer doesn't explain the decline in raises and promotions in its report, but "what we're hearing in conversations with our clients is just generally economic uncertainty," Michael Citron, a principal and compensation and rewards consultant at Mercer, tells CNBC Make It.

Companies are resetting employee expectations after the 'great resignation'

U.S. employers are still spending more on salary increases than in the past.

Raises averaged about 3% a year following the 2008 financial crisis. In 2024, U.S. companies plan to give salary increases of 4%, on average, this year, according to recent research from Willis Towers Watson, a consulting firm.

Compensation budgets are inching closer to pre-pandemic norms, says Lauren Mason, Mercer's U.S. workforce solutions and innovation leader. It's a "welcome relief" on the wage pressures companies faced during the "great resignation," she adds.

Workers quit their jobs in record numbers in 2021 and 2022, driven by higher pay and abundant job opportunities. As a result, employers raised wages at the fastest pace in decades to compete and recruit talent.

Stagnant salaries are part of an overdue reset from the "great resignation" surge in compensation when hiring managers struggled to fill roles, says Julia Pollak, chief economist at Zip Recruiter.

Lingering concerns about a potential recession and less competition for talent means companies are going into cost-cutting mode. Instead of raises and promotions, "employers are turning their attention toward other benefits and programs to retain workers," Pollak adds.

How bosses are keeping employees happy without raises or promotions

Per Mercer's research, 62% of organizations are planning to give employees off-cycle salary increases — additional compensation not tied to annual performance reviews — to help retain talent.

Other organizations are investing more in non-monetary rewards and employee benefits to maintain morale and engagement. Student loan assistance, mental health stipends and professional development programs are all popular offerings, Citron says.

Companies shouldn't rely solely on pay raises or promotions to motivate people, he adds. Investing in training programs and even small perks like flexible hours or additional paid time off can improve job satisfaction and retention.

"There are some years where you're not going to be able to promote as many people or offer as high wages increases as you want to," says Citron. "But what else are you doing to motivate and support employees when those options aren't possible?"

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