Employers Plan to Stay Consistent with Compensation Budgets in 2025

Employers are planning to dole out pay raises in 2025 similar to those they awarded in 2024, despite having fewer concerns about attracting and retaining talent.

Salary-increase budgets at U.S. companies in 2025 are projected to remain consistent with 2024, according to a recent report from Mercer. Employers expect to increase total salary budgets for nonunionized employees by 3.7% on average, compared with the 3.8% average budget increase awarded in 2024. (That’s slightly above Mercer’s fall projection of 3.6% increases for nonunionized employees.) Meanwhile, merit increases are expected to rise by 3.3% in 2025, the same as in 2024.

Still, estimates will likely continue to shift as many employers haven’t yet finalized their budgets. Mercer found that about 20% of the more than 850 organizations surveyed in November had confirmed their compensation budgets.

Compensation budgets vary by industry. The technology sector expects above-average compensation budgets, with increases of 3.5% for merit and 3.8% for total compensation, Mercer reported. Meanwhile, the health care services industry reported below-average increases for merit (3%) and total compensation (3.5%).

Pay Picture for 2025

Various other estimates have come in for 2025 pay strategies, with most reports pointing to smaller, but still stable, pay bumps for employees. For instance, data from compensation firm Payscale from summer 2024 found that U.S. employers are planning for 3.5% pay raises on average next year—a dip from the past couple of years—due to a cooling labor market. Consulting firm WTW found that planned salary increases will be 3.7% in 2025 on average, compared with the 3.8% average budget increases awarded in 2024.

Although overall pay raises are stabilizing, they remain higher than the pre-pandemic norm of 3%, experts say.

Employers say a softening labor market is the primary reason why they are less aggressive about their salary budgets. Mercer, for instance, found that fewer organizations (36%) reported difficulty in attracting and retaining employees, down nine percentage points from 2023 and 17 percentage points from 2022.

However, industry experts cautioned that employers shouldn’t completely pump the brakes on competitive salary increases.

“The U.S. labor market has stabilized because demand for talent dropped significantly from the prior three years. But supply has not changed, which is why the labor market still has vulnerabilities,” explained Lori Wisper, global solutions leader of work and rewards at WTW. “Employers planning to lower salary increases closer to the 3% we saw for the decade before 2022 should understand that the competition for talent is still fairly strong, especially in certain industries. The focus should now be on retention, so spending the salary increase budget wisely to manage potential undesired attrition if demand was to pick up in 2025 is critical to future-proofing your workforce.”

That’s important to consider as a survey from BambooHR recently found that employee satisfaction with compensation is dropping, with 33% of employees reporting that they feel negatively about their current financial remuneration—a significant jump from 23% the previous year.

“Companies need to find ways to prioritize competitive pay for their people who are driving the business forward,” Anita Grantham, head of HR at BambooHR, told SHRM last month.