Report projects smaller pay increases for 2024

Coming of a two-decade peak, Canadian employers project more modest pay raises in the coming year

Report projects smaller pay increases for 2024

In a recent Mercer study, employers anticipate an average merit increase of 3.3% and a 3.7% overall increase—including promotions and cost of living adjustments—for 2024. This marks a slight dip from the 3.6% and 4.1% actual increases in 2023.  

Another survey conducted by Eckler yielded similar results, with employers projecting an average salary increase of 3.9% for 2024, excluding planned salary freezes. This projection is slightly lower than the 4.2% expected in 2023 and the 4.4% actual salary raises recorded in 2023. 

“Last year’s projection was the highest in two decades. So, coming off of that peak, I think it would be normal to see a little bit of a decrease versus last year,” said Anand Parsan, principal at Eckler's compensation consulting practice. 

“There’s concern about the economy slowing,” said economist and author Linda Nazareth. “We’re not seeing that recession. Most people are hopeful that we won’t see that. However, [organizations are] cutting budgets or being careful about budgets.” 

Although the labor market is cooling slightly, with approximately three million unfilled positions, employers remain focused on retaining talent, said Luc Lapalme, senior principal at Mercer. In response, employers are allocating their compensation budgets with more emphasis on “critical roles, key roles, high performers and successors or potential successors.” 

This trend of unequal compensation distribution—deemed “the superstars phenomenon” by Nazareth—may become more prevalent in the future. “The idea that there are some people who, even in a tough labour market, are able to ask for whatever they want, and whatever working conditions they want, and get it,” she said.  

The Eckler survey found that nearly half of employers are providing additional training to people managers on addressing compensation-related matters

Avery Francis, CEO of Toronto-based human resources consultancy Bloom, emphasized the importance of developing a clear “compensation philosophy” among her clients.  

“Leaders need to be empowered with understanding how these decisions are made, where employee costs fit into the overall cost management decision [and] how to best communicate this to the work force,” Francis said.  

Furthermore, employees are increasingly seeking transparency in pay structures. “It’s not a matter of if pay transparency is going to be more widespread, it’s just a matter of time,” Parsan added.    

However, the majority of organizations surveyed by Eckler are still in the initial stages of implementing pay transparency. According to Parsan, this phase involves ensuring that existing employees are aware of their salary range, and in some cases, establishing salary bands or ranges for the first time.  

Less than a third of organizations surveyed by Mercer agreed that “they should have embedded transparency as part of their reward and talent philosophies.” 

This lack of transparency poses challenges, according to Francis. “People are speaking more openly about compensation than ever before amongst their peers and people they work with,” she said.  

Francis advised managers to be prepared for the questions and conflicts that may arise from these conversations but acknowledged that many are not adequately equipped for such discussions. She highlighted the importance of “internal readiness” for pay transparency, including having established salary bands and systems for explaining salary decisions to employees.  

“When a decision is made to manage employee head count or personnel costs, knowing that all areas of the business were assessed fairly and equally will oftentimes support the messaging,” Francis continued. “Whereas if you make these decisions, but you still have CEOs flying first class and going on fancy business lunches, people notice these things and that will break trust.”