Salary dynamics: Unveiling projections for 2024

Human Resources: In a surprising turn of events, the salary budgets in Australia for 2023 surpassed initial projections, fuelled by unexpected employee turnover and soaring inflation rates. employers, who initially planned a median base salary increase of 3% for 2023, witnessed an actual increase of 4% for the year, according to Mercer’s latest report.

The Wage Price Index (WPI) experienced a remarkable surge, rising by 1.3% in the September quarter of 2023, marking the highest quarterly growth in the 26-year history of the WPI. Nearly half of all jobs (49%) in the private sector observed wage movements, with the average hourly wage increase reaching 5.8% compared to 4.3% in the same quarter of 2022, while the average yearly increase stood at 4.0%.

What Lies Ahead for 2024?

The salary increase forecast for 2024 remains optimistic, with predictions for a median merit salary increase of 3.5% for Australia. However, hiring plans are expected to tread cautiously due to economic uncertainties and reports of global economic growth slowing down in the coming year.

Rising Unemployment Rate: Australia’s unemployment rate, which stood at 3.7% at the end of 2023, is anticipated to rise to 4.5% by the end of 2024. The surge in job mobility witnessed in 2022 and 2023 may finally ease, with employees opting to stay put in their roles amid a scarcity of job opportunities and ongoing cost of living pressures.

Inflation Outlook: Despite the high inflation rates in 2023, projections suggest a decrease to 3.25% by the end of 2024, further reducing to 3% by mid-2025 and 2.75% by the end of 2025. Mercer’s survey indicates that 26% of employers do not plan to consider inflation in their 2024 salary increase budgets, a notable increase from last year’s 14%.

Hiring and Retention Challenges: Hiring and retention are expected to remain significant challenges in 2024. A Mercer study reveals that 60% of organisations are grappling with difficulties in hiring or retaining employees in specific roles.

The Mercer Australian Salary Outlook anticipates robust salary budget increases across various industries, with most sectors projecting a growth of over 3.5%, including the Life Sciences sector (pharma, biotech) projecting a growth of 3.6% in salary budget growth. Particularly noteworthy is the manufacturing and chemicals, which are set for an even more substantial increase, expecting a 4% surge in salary budgets for the upcoming year.

As companies navigate the dynamic labour market in 2024, they are advised to focus on:

• Establishing a robust retention policy.

• Reviewing total remuneration strategy for sustainability and competitiveness.

• Incorporating modest salary increases, employee benefits, learning and development programs, and other retention strategies.

While the salary budget forecasts for 2024 remain optimistic, the confluence of economic factors, including slowed growth, higher unemployment, and lower turnover, may alleviate the pressure on salary adjustments in the coming year. Companies are urged to remain agile and strategic in their approach to maintain competitiveness in the evolving employment landscape.

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