As employers begin the journey into 2025, new data suggests that salary raises may be lower than previously years. According to Payscale’s Salary Budget Survey, the average planned pay raise for 2025 is 3.5%, a decrease from 4% in 2023 and 3.6% in 2024. This decline is attributed to a cooling labor market. Similarly, Mercer’s survey indicates employers are budgeting for 3.3% merit increases and 3.6% total salary growth in 2025, reflecting the same trend. While these figures show a slowdown from the pandemic-era highs, they remain above pre-pandemic levels—such as the 3% average increase in 2018, according to advisory and consulting firm WTW.
One significant compensation trend is the rise of pay transparency. Payscale’s 2024 Compensation Best Practices Report shows that 60% of organizations now publish pay ranges in job postings, up from 45% last year. This shift, driven by new legislation and recruiting pressures, not only attracts talent but also reduces turnover, with pay transparency lowering employees’ intent to quit by 30%, according to Payscale. However, pay transparency can present challenges, particularly among younger workers who may be more inclined to leave for higher pay if they notice pay disparities. To manage this, businesses are encouraged to offer regular performance feedback and clear communication about pay decisions, ensuring employees understand their compensation structure.
Despite the competitive labor market, employers are becoming more cautious amid recession concerns. A slowing economy has led companies to adopt more conservative pay strategies. While 38% of employers report challenges in attracting and retaining talent in 2024, according to WTW, this figure has decreased significantly from previous years. As turnover decreases, organizations are focusing on retaining top talent by offering flexible work arrangements and career development opportunities. Additionally, non-monetary benefits, such as hybrid work options and wellness programs, are becoming essential in attracting and keeping employees. Many companies have adopted permanent hybrid or flexible remote work policies, with an emphasis on employee satisfaction.
As salary increases slow, employers are also revisiting their total compensation strategies. With payroll expenses rising for 73% of companies, according to WTW, the focus is shifting toward a holistic approach that includes bonuses, long-term incentives, and workplace flexibility. Managers are becoming increasingly willing to offer higher starting salaries to employees working in-office 4-5 days a week. At the same time, companies are addressing pay equity and aligning their compensation packages with business goals.
To help navigate these changes, aHRrow offers expert guidance in key areas such as salary budgets, pay transparency, non-monetary benefits, and total compensation packages. Our team can assist in setting competitive salary budgets, developing clear pay transparency policies, and designing benefits that promote employee satisfaction. With aHRrow’s support, businesses can create compensation systems that are competitive, equitable, and aligned with both company goals and employee needs.