A new survey of corporate America reveals that base salary budget increases for 2025 are projected to continue close to the fastest pace in two decades. Salary increase budgets are a good proxy for the average raise a worker receives in a given year.
Employers, on average, report planned salary increase budgets of 3.9% — a slight uptick from actual growth of 3.8% in 2024. That’s according to U.S. Salary Increase Budgets 2024-2025, a report this month from The Conference Board, a nonpartisan thinktank.
“Despite a slower pace of hiring and slight increases in unemployment, elevated wages are expected to continue into 2025,” said Dana M. Peterson, chief economist at The Conference Board. “A shrinking labor supply is driving businesses to focus on retaining their current workforce, leading to sustained salary increases and higher real wage growth as inflation moderates.”
“To remain competitive and responsive to market dynamics, employers need to adjust their compensation strategies,” said Diana Scott, U.S. Human Capital Center leader, The Conference Board. “Given fluctuating market conditions, leaders are increasing their use of compensation strategies that aren’t tied to base pay, like performance initiatives and other strategic priorities.”
The report features comprehensive survey data from 300 compensation leaders on what businesses across the economy are budgeting for annual increases in base pay.
Among the report’s key findings:
Amid a still-tight labor supply, projected 2025 base salary budget increases continue at close to the fastest pace in two decades.
- Employers, on average, report planned salary increase budgets of 3.9% for 2025.
- This is down from actual increases of 4.4% in 2023, but slightly up from actual increases of 3.8% in 2024.
The highest planned overall increases:
- Companies in insurance, energy/agriculture, and communications report the highest planned overall increases
The largest planned incremental increases over 2024 growth:
- Companies that report the largest planned incremental increases to their salary budgets include those in communications, diversified services, energy/agriculture, and trade, relative to last year.
The lowest planned overall increases:
- Companies in trade and diversified services report the lowest planned overall increases.
The smallest planned incremental increases over 2024 growth:
- Companies in consulting services and utilities report modest declines in planned 2025 salary increases relative to last year.
Sign-on and retention bonuses are losing momentum:
- Most companies will continue these one-time bonuses amid a tight labor market. But a growing number are planning to reduce their reliance on these strategies.
- Roughly 5% more organizations on net plan to discontinue retention bonuses in 2025 than plan to introduce them.
- 3% more organizations will stop offering sign-on bonuses in 2025 than will introduce them.
- As pandemic job losses have recovered and employee turnover has slowed, the premium on these short-term incentives may be subsiding and giving way to more ongoing retention and talent priorities.
- Recognition programs and equity compensation are gaining momentum:
- Overall, 2025 plans suggest nearly 14% growth in the number of companies leveraging recognition and 6% growth in equity compensation.
- This indicates a balancing act between salary and wage pressures and performance-based and budget-flexible compensation strategies.
Leaders plan to increase the use of other base pay actions as well. Organizations expect to increase utilization of budgets set aside for:
- Promotions (rising to 39% of organizations)
- In response to external market pressure (32%)
- Lifting employees to the minimum of salary ranges (20%)
- Changes to role responsibilities (18%)
- For critical roles (12%)
- For salary increases for key contributors (7%)
The expected increase in usage of more direct individual base incentives related to roles and skills suggests a focus on performance and strategic priorities.
Pay equity remains a priority:
- Executives will continue to prioritize pay equity in 2025 compensation programs, driven by legal requirements and pay transparency mandates.
- 90% of organizations do not maintain a separate budget for pay equity.
- A little over half of the organizations report that they will fund pay equity increases through their merit and general budget in 2025.
- 30% report that they will reduce other spending not included in salary increase planning, such as attrition and delayed hiring, to fund pay equity increases in 2025.
