In 2025, employers provided an average merit increase of 3.2% and an average total salary bump of 3.5%, according to Mercer’s March 2025 QuickPulse® US Compensation Planning Survey. These figures fell slightly below the 3.3% merit increase and 3.7% total raise expected in November 2024, and also below the 2024 numbers. Mercer suggests this drop signals a return to pre-pandemic compensation norms due to a softening labor market.
Despite tighter budgets, employers are still focusing on targeted compensation strategies. A survey of over 800 U.S. companies showed that about 10% of employees are expected to be promoted in 2025, up from 8% the previous year, with an average promotion raise of 8.5%. Among organizations using a five-tier performance rating system, top performers received 5.6% raises, while average performers saw 3.3%.
To improve job satisfaction, especially among hourly workers, Mercer recommends a holistic rewards strategy, which goes beyond base pay. This could include affordable benefits, a positive work environment, and clear career growth opportunities. Such measures can enhance pay progression, financial well-being, and employee engagement.
However, compensation remains a contentious issue. Payscale’s 2025 Compensation Best Practices Report found that employers view compensation as a bigger challenge than recruiting or retention, with nearly one-third citing unfair pay as the main reason for losing talent. As economic uncertainty continues, tensions between budget-conscious employers and pay-seeking employees are likely to grow.
Graduates are also feeling the impact. According to an April ZipRecruiter report, 42% of recent graduates said they didn’t receive their expected salary. While soon-to-be graduates expected to earn an average of $101,500, the actual starting salary for recent graduates was around $68,400. This disconnect between expectations and reality adds to the pressure on employers trying to balance competitive pay with budget constraints.
Overall, as the labor market adjusts and companies navigate economic challenges, compensation strategies must become more precise and adaptable. Employers who balance performance-based pay with clear development opportunities are more likely to maintain a motivated and loyal workforce.
