Companies are gearing up to give out pay raises—but they won’t be as big as last year

Although inflation has since fallen below June 2022’s 40-year high of 9.1%, Americans are still struggling to make ends meet and feeling the squeeze on their paychecks. But some financial relief might be around the corner. CFOs plan to give their employees pay raises to adjust for soaring living costs. 

A majority of CFOs plan to spend more on average compensation this year, according to a 2024 survey from Gartner. Of those who plan to give pay raises, 13% say they’ll increase average compensation by 10% or more, 58% plan an increase between 4% to 9%, and 26% plan for nominal change. About 71% of the pay raises will outpace inflation, which rests at just under 3%.

“CFOs are now experiencing a lot of growth in the economy, and interest rates are going to come down, so they’re starting to warm up for this growth phase,” Alex Bant, chief of research for CFOs at Gartner, tells Fortune. “CFOs are saying, ‘Well, we need to keep our solid and strong performers so our organization can seize the road that’s on my horizon. We need to make sure that we’re paying at or above market rates.’”

Still, this year’s pay bumps aren’t nearly as big as last year’s. In 2023, about 86% of financial executives planned pay raises. Sixteen percent planned a 10% or higher pay raise, 70% planned a 4% to 9% bump, and 9% planned nominal change. This could be a consequence of a tight labor market. Previous pay raises helped lure in and retain staffers, but as companies announce mass layoffs as they prioritize efficiency and leanness, many are finding that the talent marketplace pendulum has swung back in the employer’s favor. 

“Almost every CFO I’ve talked to in the last 90 days is either going through or about to go through organization productivity initiatives. And it’s not just cost-cutting; it’s reorganizing their people and processes across the enterprise to be more efficient,” Bant says.

Bant says another reason pay bumps are lower is that companies are bifurcating wage increases between high and low-performing workers. Leaders are rethinking their talent review process and how they stack staffers against one another in order to better allocate resources to employees who drive growth. AI is also catalyzing this change: about 82% of CFOs plan to increase technology budgets, and 90% will expand their AI allotments. Workers in those enterprises have a better chance of receiving bigger pay raises than legal, finance, and HR employees, whose functional budget expansions will be much more nominal. 

“There are a lot of skills that maybe we don’t need as much going forward, and so trying to figure out how much relative pay we actually have to give those folks is probably what’s driving a lot of the downshift and the nominal change,” Bant says. “Things like finance and HR, [companies are] trying not to use those to drive growth in the organization and, instead, really manage expenses out so they can channel as much budget as possible into sales and R&D.”

But a word of caution: companies that shrink pay raises could run up an even bigger check. The survey notes that organizations that choose to keep compensation costs low in the short run rather than give steady wage increases over time could double costs down the road. Failing to follow labor market trends could foment employee uprisings and workers may unionize or bargain for wage hikes, Bant says.

Yet he adds that although pay is a key component in retaining employees, cash isn’t always king, especially among younger generations who value work-life balance and a supportive office culture. 

“CFOs are realizing that the generations coming up in the workforce care about things beyond just pay,” he says.

Emma Burleigh
emma.burleigh@fortune.com

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