Wages could rise fastest in two decades if firms' budgets are as projected

Corporate America is expecting wage bills to be higher in 2025, with budgets rising by a record amount according to a new report.

The Conference Board says that base salary budget increases for next year are set to average 3.9%, up from actual increases of 3.8% in 2024 but down from the 4.4% seen in 2023. The 2025 figure is close to the highest in two decades.

The average wage budget data provides a good proxy for the average raise a worker may receive with those working in insurance, energy/agriculture, and communications perhaps benefitting the most as firms in these industries report the highest planned overall increases.

"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."

Budgets do not just include monthly pay checks, with sign-on and retention bonuses likely to remain in the tight labor market, although the report found that firms want to reduce reliance on these payments.

However, there is a nearly 14% growth in the number of companies leveraging recognition bonuses and 6% growth in equity compensation.

Pay equity remains a priority for business leaders too but 90% of organizations do not maintain a separate budget for pay equity with most using their merit and general budget for this purpose in 2025.