Base salary budget increases for 2025 are projected to continue close to the fastest pace in two decades, according to a new report from The Conference Board that surveyed 300 compensation leaders on what businesses across the economy are budgeting for annual increases in base pay.

According to the survey results, the highest planned overall increases are companies in insurance, energy/agriculture and communications.

Salary increase budgets are a good proxy for the average raise a worker receives in a given year, according to the report, “U.S. Salary Increase Budgets 2024-2025”.

Employers, on average, report planned salary increase budgets of 3.9 percent for 2025—down from actual increases of 4.4 percent in 2023, but slightly up from actual growth of 3.8 percent in 2024.

“Despite a slower pace of hiring and slight increases in unemployment, elevated wages are expected to continue into 2025,” said Dana M. Peterson, chief economist at The Conference Board. “A shrinking labor supply is driving businesses to focus on retaining their current workforce, leading to sustained salary increases and higher real wage growth as inflation moderates.”

The highest planned overall increases are companies in insurance, energy/agriculture, and communications.

Companies in trade and diversified services report the lowest planned overall increases.

The survey found that sign-on and retention bonuses are losing momentum.

Most companies will continue these one-time bonuses amid a tight labor market, though a growing number are planning to reduce their reliance on these strategies.

Roughly 5 percent of organizations plan to discontinue retention bonuses in 2025 than plan to introduce them, while 3 percent more organizations will stop offering sign-on bonuses in 2025 than will introduce them.

As pandemic job losses have recovered and employee turnover has slowed, the premium on these short-term incentives may be subsiding and giving way to more ongoing retention and talent priorities, the report stated.

Recognition programs and equity compensation gain momentum.

Overall, 2025 plans suggest nearly 14 percent growth in the number of companies leveraging recognition and 6 percent growth in equity compensation.

This indicates a balancing act between salary and wage pressures and performance-based and budget-flexible compensation strategies, the report stated.

Other base pay actions that will likely increase include:

• Promotions (rising to 39 percent of organizations)
• In response to external market pressure (32 percent)
• Lifting employees to the minimum of salary ranges (20 percent)
• Changes to role responsibilities (18 percent)
• For critical roles (12 percent)
• For salary increases for key contributors (7 percent)

The expected increase in usage of more direct individual base incentives related to roles and skills suggests a focus on performance and strategic priorities, the survey detailed.

Executives will continue to prioritize pay equity in 2025 compensation programs, driven by legal requirements and pay transparency mandates.

90 percent of organizations do not maintain a separate budget for pay equity, the survey found.

A little over half of respondents report that they will fund pay equity increases through their merit and general budget in 2025, another 30 percent report that they will reduce other spending not included in salary increase planning, such as attrition and delayed hiring, to fund pay equity increases in 2025.

“To remain competitive and responsive to market dynamics, employers need to adjust their compensation strategies,” said Diana Scott, U.S. Human Capital Center leader, The Conference Board. “Given fluctuating market conditions, leaders are increasing their use of compensation strategies that aren’t tied to base pay, like performance initiatives and other strategic priorities.”