September 17, 2024
Budgets for base salaries expected to soar again in 2025
Despite a recent downtrend in hiring and a slight increase in unemployment, U.S. companies’ base-salary budgets are projected to rise sharply in 2025 for a third straight year, according to a new report from The Conference Board.
Following actual salary-budget growth of 4.4% in 2023 and 3.8% in 2024, the expected average increase for next year is 3.9%, as revealed by a survey of 300 compensation leaders. The Conference Board said those increases are “close to the fastest pace in two decades.”
“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,” said Dana Peterson, chief economist at The Conference Board.
Of course, base salaries don’t tell the full story of compensation. Given fluctuating market conditions, many companies are increasing their use of compensation strategies, such as performance incentives, that aren’t linked to base pay, noted Diana Scott, the organization’s U.S. human capital leader.
The highest overall compensation increases were reported in the insurance, energy, agriculture and communications industries. Companies in consulting services and utilities reported modest declines in planned 2025 salary increases.
One component of compensation that is starting to lose momentum is one-time signing or retention bonuses. About 5% more organizations, net, plan to discontinue retention bonuses in 2025 than plan to introduce them, the research found. And 3% more organizations will stop offering signing bonuses 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 Conference Board wrote in its research report.
On the other hand, a nearly 6% rise is expected in the number of companies leveraging equity compensation.
Also, according to the report, executives will continue to prioritize pay equity in 2025 compensation programs, driven by legal requirements and pay transparency mandates.
Meanwhile, compensation leaders reported they plan to increase their use of budgets set aside for other base-bay actions, most prominently promotions.
At the same time, 90% of organizations do not maintain a separate budget for pay equity. However, 30% of those surveyed reported plans to reduce other spending not included in salary-increase planning, such as attrition and delayed hiring, to fund pay equity increases.