Don’t expect the same raise you got last year, per Bloomberg.

Companies are tightening their budgets for merit raises in the coming year, which may come as a surprise to employees who have seen two consecutive years of pay increases.

According to Aon Plc, a company that compiles compensation data for over 5,500 employers, US companies plan to offer merit raises averaging approximately 3.7% across all industries in the next year. This marks a slight decrease from the 3.9% seen this year, as companies take measures to control labor budgets, and inflation rates moderate from the highs experienced the previous year. A similar trend was observed in a survey conducted by workplace consultant Mercer, which projected merit-based salary increases at 3.5% in the coming year, down from 3.9% in 2023.

"People are not going to spend what they spent last year," noted Tim Brown, a partner at Aon. "Also, inflation has come down since last year. So there's more pressure on salaries."

Workforce leaders have also corroborated these findings. Bob Toohey, Chief Human Resources Officer at Allstate Insurance Co., emphasized that compensation budgets across the board are expected to be lower than the previous year.

Despite the decline in projected pay increases, the figures forecasted by Aon and Mercer still exceed pre-pandemic levels when raises were typically around 3% annually. This is attributed to the ongoing strength of the labor market and historically low unemployment rates, as per Mercer Senior Principal Lauren Mason. Further reducing compensation budgets may remain a possibility next year as companies adapt to the evolving economic environment.

The technology sector has been notably affected, with only 5% of tech firms indicating that they are actively hiring, compared to 22% the previous year. Tech firms usually lead in terms of projected salary increases. However, following layoffs and cost-cutting initiatives, they are now anticipated to offer merit raises of just 3.3% in the next year, according to Mercer. This falls below sectors such as energy and consumer goods.

A separate survey conducted by technology job site Hired found that tech salaries have reached a five-year low when adjusted for inflation. Nevertheless, job roles demanding specialized skills, such as machine learning engineers and data scientists, continue to be in high demand.

Mercer's findings also suggest that salary increases linked to promotions will slow down in the coming year due to companies planning to promote fewer individuals. During the hiring boom experienced in 2021 and 2022, many companies provided raises and promotions to white-collar workers, even in the middle of the year, to retain their top talent. A survey by workplace consultant Willis Towers Watson found that seven out of ten companies exceeded their planned pay adjustment budgets during that period.

Another report by Willis Towers Watson indicated that organizations are budgeting for overall salary increases of approximately 4% in the next year, down from the 4.4% boost seen in the current year. Although salary increases are not as substantial as in recent years, companies are becoming more generous with perks and benefits such as flexible work schedules and paid parental leave, according to a recent survey by staffing firm Robert Half Inc.