Compensation budgets are holding steady for 2025, even as concerns over talent attraction and retention ease. Employers plan to allocate similar salary increases as in 2024, according to expert projections.
Pay Raises Remaining Consistent
Salary-increase budgets at U.S. employers are expected to stay close to 2024 levels, found Mercer’s 2025 Compensation Planning Survey. Participating organizations estimate hiking total compensation for nonunion staff by 3.7% on average—matching last year’s 3.8% rise. Meanwhile, merit increases should hit 3.3%, on par with 2024’s 3.3% bumps.
According to one labor economist, unless there’s some major disruption in the labor market, compensation increases in 2025 will likely remain the same as 2024, or might even decline slightly.
Predictions Vary Slightly
Projections from other experts indicate slight dips in 2025 raises versus 2024, albeit still robust historically. Payscale’s mid-2024 data showed U.S. employers budgeting 3.5% pay hikes on average next year—down from 2022 and 2023 amid cooling labor markets, but above the pre-pandemic 3% standard. Similarly, consultancy WTW recently forecasted American businesses allotting 3.7% average salary increases for 2025, versus 2024’s 3.8%.
The same economist explained that the expectation is wage growth will likely be in line with the already slowing salary increases, which is based on data from the Bureau of Labor Statistics’ Employment Cost Index, showing that annual growth rates in compensation categories were around 3.7—4% through the first three quarters of 2024.
Varies By Industry
The survey found compensation budgets differing by sector. Tech employers expect above-average raises at 3.5% merit and 3.8% total. Healthcare services projected below-average bumps of 3% merit and 3.5% total.
Causes For Steady Budgets
Experts cited cooling labor markets allowing businesses to maintain—rather than accelerate—pay investments next year. Mercer showed 36% of surveyed organizations struggling with attraction and retention lately, down 9 percentage points year-over-year and 17 points from 2022’s heights.
Another expert explained that the U.S. labor supply has remained the same while the demand from companies for talent has declined a lot since 2021. Even so, competition for workers is quite healthy in a variety of industries. Employers need to be careful where they spend the money they have allocated for raises to make sure they retain their top talent, according to the expert.
Don’t Stall Pay Strategies
While economic indicators may prompt slowing salary growth, experts warned against reversing recent progress.
The same expert stated that companies should focus on retention, which is why they should be careful where they spend their budget for salary increases. In other words, the focus should be on retaining existing talent, which would help companies protect themselves in the event that demand picks up in 2025.
A fall 2024 BambooHR survey showed employee pay satisfaction plummeting—33% feel negatively about compensation versus 23% one year ago.
A human resources expert advises companies to make sure that the people driving the business forward are competitively compensated to retain them and avoid an unpleasant situation in the future.
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Copyright © 2025 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
