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The days of big wage increases are over, with companies already planning to cut pay increases next year.
The decline in pay raises, along with last week’s lackluster jobs report, are the latest sign that workers are losing much of the influence they’ve had over their bosses over the past few years. Now, with hiring slowing sharply, employers are reining in pay costs by cutting or freezing bonuses and offering smaller or smaller raises, business leaders and compensation consultants say.
With hiring slowing sharply, employers are reining in pay costs by cutting or freezing bonuses and reducing the frequency and size of salary increases. (Getty Images/Photo Illustration/FOX News Digital/Fox News)
Some companies are trying to fill positions by paying lower salaries to workers in lower-cost cities than their predecessors.
Meanwhile, new data shows that fewer workers are getting pay raises by changing jobs compared to the end of last year.
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Nearly half of 1,900 U.S. companies surveyed in the second quarter said they had scaled back their salary increase budgets this year, lowering the median salary increase to 4.1% this year from 4.5% in 2023. Companies are forecasting even less spending next year, with the median salary increase coming in at 3.9% in 2025, according to WTW, the employer consulting firm that conducted the survey.
Ellen Teeter, 23, said she was hoping for a raise beyond the 1.5 percent raise she received this year.
“It’s disappointing,” said a banking analyst. Charlotte, North Carolina.
When she joined the company a year ago, she received a 10% signing-on bonus, but was told her raise this year would range from zero to 10%. She’s not alone in being on the low end: Most of the colleagues she spoke to also got raises between 1% and 2%, with one getting 4%.
Teeter said the disappointing raise isn’t enough to stop her from quitting for now, because she hopes she’ll get a more senior role next year. If that doesn’t happen, she’ll start looking for another job. “I want to make more money and do more meaningful work,” she said.
Job seekers are plentiful
While the raises are still historically high, they’re a far cry from the generous ones companies offered to retain employees two or three years ago. Tech companies that have boomed during the pandemic have offered high salaries to recruit workers before they even got a job, and employers across the economy have offered exorbitant pay hikes to keep workers from leaving.
Many companies have cut their salary increase budgets this year. (iStock/iStock)
As these generous incentives shrink, new hires appear to be feeling the brunt: In the second quarter, 58% of people hired in recent months got a raise because they changed jobs, down from 70% in the fourth quarter of last year, according to a survey of 1,500 recently hired people by job-seeking platform ZipRecruiter. About one in seven people received a signing-on bonus in the second quarter, up from about one in three in the fourth quarter.
Some companies are going all out in reassessing pay rates. Jeff Rowe, chief executive of agriculture giant Syngenta, said executives are scrutinizing more closely where to add new jobs or fill positions to replace workers who leave as part of a company-wide effort to cut costs and become more efficient.
That means hiring in cities with lower salary costs, such as Manchester, England and Budapest, rather than in places with higher salary costs. The goal is to take advantage of “geographic arbitrage,” Rowe said.
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The slowing job market also means employers can be choosy about who they hire, which is holding back salaries, said Julia Pollack, chief economist at ZipRecruiter. A quarter of recent hires in ZipRecruiter’s survey said they felt encouraged to negotiate their salary offer. That’s down from 43% in the first quarter of the year, suggesting job seekers are well aware that employers have other qualified candidates.
Only 85% actually managed to negotiate better terms, compared to over 90% last year.
The slowing job market has companies lowering salary offers for new hires. (iStock/iStock)
“You don’t need to reset your salary,” Pollack says. “You’re just going to get more applicants ready to accept the first offer.”
(You can’t expect an outside job offer to put pressure on managers to pay you: The survey found that about 16% of new hires said their employers disagreed with their offer when they announced they were leaving, down significantly from the start of the year.)
According to the latest data from Gusto, a payroll and benefits software company that serves more than 300,000 small businesses, new hires across industries are earning 7% less than new hires in the same occupation in 2022. The biggest declines are in white-collar occupations, including finance, where new hires’ salaries are down 9.2% from last year.
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Lori Wisper, managing director at WTW, said cutting pay increases by just 0.1 percentage point could save large companies hundreds of millions of dollars in annual payroll costs.
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“I tell my clients, ‘Spend your money wisely. Don’t hand out peanut butter so everyone gets the same amount,'” she says, which means being more careful about the size of performance raises and bonuses.
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Jim Chang, a compliance professional at a financial-services firm in New York, said he expected his bonus to increase this year but it stayed the same at about 15% of his salary, and when inflation is taken into account, it feels smaller than it would have been a year or two ago, Mr. Chang said.
Still, he performed better than many of his colleagues who didn’t get a bonus this year, and his increased base salary helped.
“A flat-rate bonus wouldn’t be the only factor that would make me look elsewhere,” he said.
Chip Cutter contributed to this article.
