According to three compensation surveys, US employers are planning slightly smaller pay raises in 2025, between 3.5 percent to 4.1 percent, which is below the average 4.1 percent salary increase given in 2024, and the 4.5 percent increase in 2023 (according to WTW).
A cooling labor market and inflation are driving the reduction in pay increases, according to the reports. Still, the 2025 projected pay increases are more than the average of three percent before the pandemic.
Companies are also reviewing some benefits to attract and retain employees, such as flexible workplace policies, health and wellness benefits, and long-term bonuses.
According to the US Department of Labor, the US unemployment rate rose to 4.3 percent in July, largely due to more Americans looking for work. This is the highest unemployment rate in nearly three years but remains low historically. Average hourly earnings increased by 3.6 percent year-over-year in July. Employment was highest in healthcare, construction, leisure and hospitality, and government.
Uniquely, weather played a key part in the rise in unemployment in July, as bad weather in Texas and Florida kept employees from work.
I advise companies to factor in pay equity adjustments for their 2025 salary budgets to ensure they do not have any pay compression or disparity issues. Learn more here.
Below are the summaries from the three compensation survey organizations.
WTW Report
In mid-July, WTW found that almost half (47 percent) of U.S. organizations report that their salary budgets for the 2024 cycle are lower than the previous year, as the overall median pay raise for 2024 fell to 4.1percent, compared with 4.5 percent in 2023. That’s according to the latest Salary Budget Planning Report by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.
The WTW report, which had 32,000 responses from 1,888 organizations (including global organizations), found employers are being more conservative with their salary budgets as they anticipate lower demand resulting in longer-term stability in their employee base following a period of high resignation and turnover. While around two-fifths of employers (38 percent) report having trouble attracting and retaining talent in 2024, this figure has dropped almost 20 percentage points from two years ago (57 percent).
WTW found that organizations are taking action to address current market conditions and employee needs, particularly providing more workplace flexibility (52 percent) and improving the employee experience (52 percent).
“In light of cost management concerns, employers are taking more of a holistic approach to their reward programs, factoring in bonuses, long-term incentives, and health and wellness benefits; however, a more targeted review of specific employee groups could allow for greater support for those with in-demand skills or those in lower salary ranges. Pay equity is top of mind for employers, and giving a big-picture view of what employees are offered ensures the salary increase process is clear and emphasizes the connection to business performance,” said Lesli Jennings, North America leader, Work, Rewards and Careers, WTW.
WorldatWork Report
WorldatWork’s 2024-2025 Salary Budget Survey projects that salary increase budgets in the U.S. will average 3.8% in 2025, which is a slight decline from 2024’s 3.9%. WorldatWork 2024-2025 Salary Budget Survey” included 2,185 organizations that provided data for at least one and as many as 22 countries, for a total of 6,475 submissions.
Payscale Report
Payscale sees a softening for pay raises in 2025 due to a cooler labor market. US employers are planning for 3.5 percent raises in 2025, which is down from the 3.6 percent increase given in 2024. In the United States, the primary reasons organizations said they plan lower pay include
- higher-than-normal increases in 2024
- concerns about economic conditions
- reduced labor market shortages and competition.
However, organizations that said they are increasing budgets in 2025 cited increased competition for labor as well as improved economic conditions. Salary budgets and planned pay increases vary by industry.
Payscale found that Canadian employers plan a 3.3 percent pay increase in 2025, down from 3.4 percent in 2024.
As compensation analysts plan for smaller pay increases in 2025, please remain vigilant for pay compression and disparity issues, as well as any state or municipal requirements for pay transparency when posting job openings.
About Victor
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and Managing Partner of InnovationOne, LLC. He works with organizations to transform HR and recruiting, implement remote work, and develop extraordinary leaders, teams, and innovation cultures. He is the author of the highly acclaimed book, Hack Recruiting: The Best of Empirical Research, Method and Process, and Digitization. He is quoted in business journals such as The Wall Street Journal, Workforce Management, and CEO Magazine. Victor has partnered with The Conference Board on innovation research. Subscribe to his weekly blogs at http://www.VictorHRConsultant.com