Setting the annual salary increase budget involves a delicate balancing act. Employers must carefully weigh market projections, internal financial constraints, and the competitive landscape. Factors like the availability of talent in specific areas, employee performance, and the overall economic climate all play a significant role in determining how much organizations can afford to invest in employee compensation.
Salary Increase Budget Data
Employers turn to surveys which provide projections on what was spent on actual increases in 2024 and what is projected to be budget as a percent of salaries in 2025. Overall, the median of salary increase budgets are expected to be similar to ’24.
| Survey Source | 2024 Actual | 2025 Projected |
| Willis Towers Watson (WTW) | 4.10% | 3.90% |
| Mercer | —- | 3.70% |
| WorldatWork | 3.50% | 4.00% |
| Payscale | 3.60% | 3.50% |
| Conference Board | 3.80% | 3.90% |
| Compensation & HR Group | 3.67% | 4.00% |
Understanding Salary Increase Types and Projections
Salary increases typically fall into a few key categories:
Cost of Living Adjustments (COLA) or General Increases: These are typically applied across the board, with some exceptions for those with poor performance or already at the top of their salary range. WorldatWork projects a median 2.0% COLA for 2025, reflecting a moderate inflation environment.
Merit Increases: These are performance-based increases that reward top performers. The size of the merit increase will vary depending on individual performance ratings and current salary levels within the job’s salary range. Employers aim to ensure that merit increases are both competitive and internally equitable. The WorldatWork survey reports the median merit increase budget of 3.5% for 2025.
Other Increases: This category encompasses a variety of adjustments, including:
- Promotions: Significant salary increases are typically associated with promotions to higher-level positions, ranging from 6% to 12% or more.
- Equity Adjustments: These adjustments are made to address pay disparities identified through pay equity audits to ensure compliance with regulations like those from the OFCCP.
- Minimum Wage Adjustments: Increases are necessary to comply with state and federal minimum wage laws.
- Salary Range Adjustments: When minimum salaries within a job range are increased, employees falling below the new minimum must have their salaries adjusted accordingly.
WorldatWork reports that the median for these other increases will account for approximately 0.5% of salaries in 2025.
Need Assistance?
Wilson Group can provide expert guidance on planning and implementing your employee compensation planning and increase strategies. Contact us today to learn more.
