US employers plan to raise compensation budgets in 2024 by 3.5% for merit increases and 3.9% for total salary increases for nonunionized employees, but that is lower than the increases of 3.8% and 4.1% respectively planned for 2023, according to a report by Mercer.

“While preliminary compensation budgets for 2024 are showing a slight decline, they remain well above pre-pandemic levels, reflecting the ongoing tightness of the labor market and low levels of unemployment,” Lauren Mason, senior principal of career at Mercer, said in a press statement.

Mason noted that if the labor market stabilizes and inflation cools further toward the end of 2023, compensation pressures will likely decline, prompting “further reductions in 2024 compensation increase budgets as employers adjust their strategies to reflect the changing economic landscape,” she said.

Across industries, healthcare services are projecting 2024 budgets that lag other industries, with merit budgets of 3.1% and total increase budgets of 3.4%, as the industry continues to recover from the financial impact of the pandemic, according to the report. In addition, recent layoffs and financial strain on the high-tech industry also appear to be impacting merit budgets, with projected increases of 3.3%, a reversal of historical trends where high-tech typically led increases across industries.

Several industries, including energy and consumer goods, are planning merit budgets above the national average, projecting an increase of 3.7%.

Over the last year, employer base salary levels increased 5.6% on average despite 2023 merit increase budgets of 3.8%. According to the report, this is due to off-cycle pay increases, which 59% of employers reported providing in 2023. The top reasons for off-cycle increases included retention concerns, counteroffers, market adjustments and internal equity.