Mercer: Employers Preparing for 3.7% Total Salary Increases in 2025

Employers are planning to raise their compensation budgets by 3.3% for merit increases and 3.7% for total salary increases for non-unionized employees in 2025, according to Mercer’s latest QuickPulse U.S. Compensation Planning Survey.

The survey report, which included the responses of more than 1,000 leaders from 850 U.S. companies in November, showed budgets should remain consistent with the actual merit (3.3%) and total salary increases (3.7%) delivered in 2024.

Mercer’s results join the following 2025 salary surveys:

WorldatWork (released July 31): 3.8% mean salary increase budgets for 2025; 3.9% actual mean increase budgets in 2024.
Payscale (July 31): 3.5% average pay raises for 2025; 3.6% actual increases in 2024.
Conference Board (Sept. 8): 3.9% average salary increase budgets for 2025; 3.8% actual budgets in 2024.
WTW (Dec. 18): 3.7% salary increase budgets for 2025; 3.8% average increase budget in 2024.

“These findings reflect the dynamics of a stabilizing yet still competitive U.S. labor market amid ongoing economic uncertainty,” said Sue Holloway, a compensation content director at WorldatWork. “And, they signal retaining talent remains a priority for organizations.”

Jack Jones, a principal consultant at Mercer, said despite the gap closing between talent supply and demand, there is still competition among employers to attract and retain talent, resulting in upward pressure on wages and benefits.

“The labor market remains tight, characterized by low unemployment rates and high demand for skilled workers, yet economists are unsure if it will rebalance or head toward collapse,” he said.

In addition, Jones said organizations are still seeing ongoing effects of the pandemic influencing hiring practices and compensation strategies, with talent pools remaining competitive and salary budgets elevated compared to historical norms. Other drivers include declining labor force participation rates, shifts in employee expectations regarding pay transparency, and competitiveness around frontline and operational workforce demand.

Industry Variations

In Mercer’s study, the technology sector reported above-average compensation budgets, with increases of 3.5% for merit and 3.8% for total compensation, while the healthcare services industry reported below-average increases for merit (3.0%) and total compensation (3.5%).

These variations significantly impact pay increases, as different sectors experience unique economic pressures and labor demands, said Jones. The technology sector has long been at the “top of the pack” when it comes to annual pay increase budgets, he explained, as artificial intelligence will continue to add business pressure, including to the HR function and people programs.

In contrast, healthcare has been at the “bottom of the pack” since the COVID-19 pandemic as the industry has faced significant financial challenges in recovery, Jones said. The reasons, he said, include the rising costs of medical equipment, drugs and technology, putting pressure on healthcare budgets and limiting funds available for employee raises.

Planning for 2025

Many organizations won’t finalize their budgets for several months, and circumstances can change, said Holloway.

Jones agreed, noting preliminary budgets may not stick. Mercer’s survey found most employers (80%) indicated they have not finalized their compensation budgets.

“Historically, final budgets do drop slightly from the preliminary estimate,” Jones said. In 2024, that drop was 0.3% from preliminary to approved salary budget.

He attributed several reasons as to why organizations may revise their budgets:

Rapidly changing economic environment and unforeseen market conditions caused by factors such as inflation;
Fluctuating demand for goods and services; and,
Unexpected changes in labor costs.

Therefore, compensation professionals must stay vigilant, closely monitoring market trends, Holloway said — not just on a macro level, but also within their organization’s specific industry and local labor market.

Proactive planning and adaptability will be crucial in managing compensation effectively, Jones added.

“To prepare, organizations should conduct regular market analyses to benchmark salaries, invest in employee development to enhance retention and consider flexible compensation packages that address diverse employee needs,” he said. “Modernized and simplified compensation programs will be a cornerstone of competitive and compliant compensation programs in the future.”

Jones also recommended employers evaluate the return on investment (ROI) from their annual salary increase budgets.

“It may open eyes about how traditional merit processes are missing the mark and not optimized to maximize ROI,” he said. “Introducing data-driven merit decisions can have an immense impact on budget optimization, process efficiency and pay transparency.”

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