Base salary budget increases are projected to remain strong in 2025, continuing at a pace close to the highest in two decades, according to a report from The Conference Board released on Sept. 8, 2024. Employers are planning for an average salary increase budget of 3.9%, a slight rise from the 3.8% growth seen in 2024.
Despite a slower hiring environment and a slight uptick in unemployment, wages are expected to remain elevated in 2025. One of the key factors driving these salary increases is the shrinking labor supply. As businesses focus more on retaining their existing workforce, real wage growth is expected to continue as inflation begins to moderate. This suggests that even with a cooling labor market, the competition for talent remains fierce, pushing wages upward.
A survey of 300 compensation leaders shows that most companies will continue to offer one-time bonuses, such as sign-on and retention bonuses, though some plan to scale back these practices. Notably, 5% more organizations plan to discontinue retention bonuses than to introduce them in 2025. Similarly, 3% more plan to stop offering sign-on bonuses rather than implementing them next year. This shift indicates a possible reevaluation of short-term incentive strategies as companies adjust to evolving market conditions.
Meanwhile, other reports offer slightly lower projections for salary increases. A Payscale survey predicts U.S. employers will raise salaries by 3.5% on average in 2025, with variations by industry ranging between 3% and 4.5%. This reflects a continued cooling of the labor market, with 2024 seeing salary increases of 3.6%, down from 4% in 2023.
Workers, however, still expect competitive pay. According to Payscale, organizations lagging in offering transparent pay practices and meaningful raises may struggle to attract and retain talent. This underscores the need for employers to align their compensation strategies with worker expectations, even amid fluctuating economic conditions.
Additionally, The Conference Board’s survey revealed that many employers plan to increase budgets for promotions, salary adjustments to meet market demands, and raises for key contributors. There is also growing interest in recognition programs and equity compensation, with 14% more companies planning to adopt recognition initiatives and a 6% increase in equity compensation efforts in 2025.
In summary, salary growth is expected to persist into 2025, though companies are reassessing their bonus strategies. As competition for talent remains strong, employers are focusing on long-term compensation adjustments and recognition programs to retain top employees.
