WTW: U.S. Employers Project 3.7% Salary Increase Budgets for 2025

U.S. employers are experiencing less difficulty attracting and retaining talent, but they still plan to keep salary increase budgets on par with 2024 levels. This is according to the latest Salary Budget Planning Report, released Dec. 18 by global advisory firm WTW.

The new report, which pulls data from a survey of 2,002 U.S. organizations, showed these employers are projecting 3.7% salary increase budgets for 2025, just under the 3.8% average increase budget in 2024.

The projection echoes many of the trendlines found in other salary budget survey reports for the U.S. market.

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.
Mercer (Dec. 10): 3.7% average total increase budgets for 2025; 3.7% actual average increases in 2024.

Factors Driving Higher and Lower Budget Forecasts

If the WTW prediction for 2025 holds true, salary increases will remain at a fairly robust rate by historic standards (using the pre-pandemic norm of 3% as a measuring stick). An actual rate north of 3.5% would also be fairly significant in an environment of generally higher total payroll expenses (which incorporate salaries, bonuses, variable pay and benefit costs). WTW’s survey found the average increase in payroll for respondents was 5.5% in 2024.

According to the WTW report, employers that plan to increase their salary budgets for the new year pointed to inflationary pressures (39%) as the primary factor. While most survey participants acknowledged an improved labor market, 31% still identified it as a reason to increase their budget. In fact, fewer organizations overall (36%) reported difficulty in attracting and retaining employees, down 9 percentage points from last year’s report and 17 percentage points from the prior year.

Those employers that plan to reduce their salary increase budgets called out weaker financial results (36%) and cost management concerns (34%) as primary factors.

Pay as Part of an Overall Investment in Talent

Russ Wakelin, the head of global product development within rewards data intelligence at WTW, stated that steady and improved pay increases are indicative of organizations’ investment in talent.

“Although salary is crucial for employees, other elements — such as healthcare and retirement benefits, new challenges, work flexibility, and meaningful contributions — are significant as well,” he said. “Companies should consistently evaluate their comprehensive offerings, focusing on workplace culture, communication, and a holistic approach to benefits and rewards.”

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WTW’s data showed many organizations have taken action to improve their workplace culture to better address current market conditions. The new report showed:

54% of respondents have placed broader emphasis on diversity, equity and inclusion (DEI).
53% have taken steps to improve the employee experience.
52% offer or are planning to offer the choice for remote, onsite or hybrid work arrangements.
48% are incorporating more workforce flexibility.

“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,” said Lori Wisper, WTW’s global solutions leader for work and rewards. “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.”

Access top-level results from WorldatWork’s 2024-2025 Salary Budget Survey report now. The full report — covering base salary increases and merit budgets for 22 countries and in-depth salary budget insights for the U.S., Canada, India and the United Kingdom — is also available for purchase. Report purchase also provides access to the U.S./Canada Online Reporting Tool to build customized reports based on industry, organization size and/or geographic area.

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