Compensation budgets will remain above historical trends in 2025, employers say

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Diving summary:

Employers expect to increase their compensation budgets by 3.3% for merit increases and 3.7% for total pay increases for non-union workers in 2025, according to a December 10 Mercer report. This reflects the actual merit and total salary increases awarded in 2024, which were 3.3% and 3.6%, respectively.
Of the more than 850 US organizations surveyed, 69% said they were confident in their budget predictions. While similar to last year’s increases, the projections remain above historical trends, Mercer said.
Budgets vary depending on the sector. The technology sector expects remuneration budgets above average: increases of 3.5% for merit and 3.8% for total remuneration. Meanwhile, the health services industry reported below-average increases: 3% for merit and 3.5% for total compensation, Mercer said.

Diving information:

Employers recognize the need to invest in their workers to improve retention, given the tight labor market and low levels of unemployment, Lauren Mason, Mercer’s U.S. workforce solutions leader, said in a statement.

“To remain competitive in this environment, employers will need to look beyond compensation and transform the work itself to improve the employee experience and drive greater productivity,” Mason said.

To that end, companies intend to promote 9.3% of workers this year, up from 8% in 2024. Many will take a flexible approach to promotions by doing them as needed or twice or more a year. , according to the report.

Some employers are also factoring pay transparency into their compensation strategy. Eighteen percent of companies said they share salary ranges with both workers and candidates, and another 27% are considering doing so, Mercer found.

Part of that boost could be related to employee engagement and happiness.

“When employers are unclear about pay, employees create their own narratives, and those stories can be more negative than reality,” Mason said. “Despite significant investments in pay in recent years, employee satisfaction with fair pay continues to decline.”

However, although many employers say they include salary ranges in job offers63% do not share them with current employees, according to the results of a survey conducted by Aon plc, a global professional services firm.