For WorldatWork Members
- WorldatWork’s Salary Budget Survey, research
- Salary Budget Planning Guide, tool
- Comp Talk 101: Training Managers to Communicate Pay Decisions, Workspan Magazine article
- Simplifying ‘Comp-Speak’ for Employees in the Era of Pay Transparency, Workspan Magazine article
For Everyone
- ‘Year of Contention’: Employers Mull Tight Budgets, Pay Expectations, Workspan Daily article
- Could Constructive Communication Combat Compensation Challenges? Workspan Daily article
Although employers initially projected steady salary increases for 2025, actual increases fell slightly below 2024 levels, according to Mercer’s latest QuickPulse U.S. Compensation Planning Survey.
The survey of more than 800 U.S. organizations showed employers delivered an average merit increase of 3.2% and a total increase of 3.5%, which encompasses all salary increases, including merit, promotional, cost-of-living and other adjustments, in 2025.
Previous 2025 salary surveys revealed the following:
- 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.
The latest figures from Mercer reflect a decline from November 2024 projections, where U.S. employers anticipated 3.3% for merit increases and 3.7% for total increases for non-unionized employees. In 2024, the actual merit and total salary increases delivered were 3.3% and 3.6%, respectively, indicating an ongoing decline in annual compensation budgets.
“The findings suggest that the U.S. labor market is stabilizing, with compensation increases decelerating from pandemic-era highs,” said Jack Jones, a principal consultant at Mercer. “While unemployment remains low, there are signs of a potential decline in 2025, as job openings are decreasing despite recent strong hiring levels. Companies are also showing increased caution in their spending due to current economic uncertainty.”
Slow Spending
According to Jones, with workforce supply and demand stabilizing, organizations may not have to be as competitive with their salaries as they once were.
He noted that in 2025, 61% of employers provided off-cycle salary adjustments, down from 64% in 2024, with 75% citing they did so due to retention concerns. Additionally, 12% reported a lower off-cycle adjustment budget, and one-third have reduced their annual salary budgets, reflecting more conservative spending due to economic uncertainty.
Sal DiFonzo, the managing director of compensation and rewards consulting at Gallagher, and a member of WorldatWork’s Compensation Advisory Council, stated labor market supply and demand typically drive base pay increases.
“Supply of labor has increased from laid-off tech and federal workers, but it has decreased through the steady march of daily Baby Boomer retirements,” he said. “A significant decrease in the number of job postings has also mitigated demand. An unexpected higher number of jobs were created last month, and the unemployment rate held steady at 4.2%. This steady rate is another indicator of a balanced labor market.”
Jones added, “As the demand for talent has leveled off, the narrowing supply-demand gap for talent has reduced the pressure on employers to offer significant compensation premiums. [As such, they] are adjusting their compensation strategies to align with current market conditions.”
Promotions and Off-Cycle Increases
Promotions are on the rise, Jones said, with employers expecting to promote about 10% of their workforce in 2025, up from 8% in 2024.
“This trend is accompanied by an average pay increase of 8.5% for those promoted, indicating that companies are still willing to invest in talent development despite tighter budgets,” he said. “However, off-cycle increases may remain limited as organizations navigate economic uncertainty.”
Additionally, the Mercer survey showed incentive payouts for 2025 remain largely consistent with 2024. Among organizations providing short-term incentives, 36% plan to pay near target and 30% above target. For long-term incentives, 34% of organizations reported payouts above target and 37% at target.
What to Expect
According to Sue Holloway, a compensation content director at WorldatWork, as employers deal with the ongoing uncertainty related to the impacts of recent tariff changes and the pressure to offer competitive pay to retain talent, total rewards professionals are likely to see some continued stabilization following a few years of increasing and significantly larger pay increase budgets during the pandemic and Great Resignation.
In addition, leverage is shifting back to employers from employees, said DiFonzo.
“If 3% merit budgets are equilibrium, based on the history over the last 20 years, then the labor market is moving back to a balanced position,” he explained. “The good news for employees is that 3.2% merit budgets are still above the inflation rate of 2.4% (as of March 2025), and the result is an increasing standard of living for now. The caveat is that inflation rates may increase suddenly in future months.”
Given the current trend, DiFonzo said merit budgets are likely to settle to about 3%, but larger organizations and more profitable industries with higher demand for their products and services will continue to average higher than 3%.
Modest pay increases will continue in 2025, Jones said, with a focus on performance-based pay and strategic compensation planning.
“Organizations should prepare for a heightened emphasis on data-driven compensation strategies and be ready to adapt to employee expectations regarding pay transparency and career development,” he said.
Jones also noted employers should modernize their merit processes to eliminate stagnation and benchmark salaries against market data for informed decision-making.
“Preparing for pay transparency by codifying their compensation philosophies is important,” he said. “ Clear communication about pay decisions will be essential to enhance employee engagement and trust. … Employers can play a vital role in equipping managers with the tools and training to have meaningful conversations about pay, promotions and career development opportunities.”
Alongside compensation, Jones said employers should focus on their holistic total rewards strategies, including benefits, career mobility and well-being.
“This comprehensive approach will help attract, retain and motivate the employees needed to succeed,” he said.
Editor’s Note: Additional Content
For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics: