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

Dive Brief:

• Employers expect to increase their compensation budgets by 3.3% for merit increases and 3.7% for total salary increases for non-union workers in 2025, according to a Dec. 10 Mercer report. That mirrors the actual merit and total salary increases awarded in 2024, which were 3.3% and 3.6%, respectively. 
• Of the more than 850 U.S. 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 by sector. The technology sector expects above-average compensation budgets: increases of 3.5% for merit and 3.8% for total compensation. Meanwhile, the healthcare services industry reported below-average increases: 3% for merit and 3.5% for total compensation, Mercer said.

Dive Insight:

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. 

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

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

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

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Part of that drive could be tied to employee engagement and happiness. 

“When employers aren’t clear about pay, employees create their own narratives — and those stories can be more negative than the reality,” Mason said. “Despite significant investment in pay in recent years, employee satisfaction with fair pay is still on the decline.”

Yet, while many employers say they include salary ranges on job listings, 63% don’t share them with current employees, according to the results of a survey by Aon plc, a global professional services firm.