What Is the Average Salary Increase Per Year? A 2025 Guide for HR and Compensation Teams

Introduction

The average salary increase per year refers to the typical percentage change in base pay that employees receive during an annual compensation cycle—and for U.S. HR and compensation teams planning 2025–2026 budgets, this metric is foundational. In 2025, most U.S. organizations are targeting roughly 3.5% average salary increases per year, with variation by industry, job level, and performance, down slightly from the 4%+ peaks seen during 2022–2023’s inflation surge.

This article focuses exclusively on U.S.-based employers, HR professionals, and compensation teams—not individual job seekers or employees negotiating personal raises. Understanding where your organization’s average annual raises stand relative to market benchmarks is critical for salary budgeting, market-pricing roles accurately, maintaining pay equity, and building a retention strategy that works in an environment of moderating inflation and a cooling labor market.

The direct answer: In 2025, survey data from major compensation consulting firms shows most employers budgeting between 3.2% and 3.9% for average pay increases, with realized increases tracking slightly lower as economic uncertainty mounts and employer leverage improves. This represents a stabilization above pre-pandemic norms of around 3%, but below the 4%+ levels many workers experienced in 2022–2023.

By the end of this guide, you will gain:

Clarity on how average annual salary increase benchmarks are calculated and what “average” really covers
Insight into how current 2024–2025 trends compare with pre-pandemic norms
Understanding of how to segment raises (merit, market, equity, promotions) rather than relying on a single blanket percentage
Knowledge of how to use real-time salary data like SalaryCube DataDive Pro and Bigfoot Live to move beyond static averages
Practical steps to build a defensible annual increase strategy and communicate it internally

Understanding Average Annual Salary Increases

The term “average salary increase per year” in compensation terms refers to the mean percentage change in base pay for employees who receive an increase across a 12-month cycle. This metric serves as a directional benchmark for HR and compensation teams, not a prescription that every organization should copy.

Several important distinctions matter when interpreting this data. The average increase (mean) differs from the median salary increase, which may be more representative when distributions are skewed. Salary budget refers to what organizations plan to spend, while realized increases reflect what actually gets delivered—these can differ significantly based on turnover, hiring pace, and mid-year adjustments. Finally, base pay changes are distinct from total compensation growth, which includes bonuses, equity, and employee benefits.

HR and compensation professionals typically use national averages as a starting point for internal planning, then adjust based on their organization’s specific circumstances, competitive pay needs, and business performance.

Types of Annual Salary Increases HR Should Track

Multiple components can roll up into the “average salary increase per year” metric that survey results report. Understanding each type enables more precise decision-making and clearer communication with leadership.

General/COLA increases are cost of living adjustments applied broadly to help employees keep pace with rising costs and inflation. These are often applied across the board rather than differentiated by performance.

Merit increases are driven by job performance ratings and reflect a pay-for-performance philosophy. Most companies structure these through merit matrices that link performance review outcomes to differentiated percentage increases.

Market/structure adjustments are based on external competitiveness data and range updates. When labor statistics show that market rates for specific roles have risen significantly higher than internal pay levels, these adjustments help maintain competitive pay.

Promotional increases are tied to changes in level, scope, or responsibilities. These salary bumps typically range from 8% to 10% and are separate from annual merit cycles.

Equity or compression adjustments correct internal misalignments where, for example, new hires are paid close to or above longer-tenured co workers in similar roles.

Many published “average salary increase” figures (the ~3.5–4% headlines) blend several of these categories. Breaking out these types in internal reporting leads to more defensible decisions and better storytelling with leadership about where the compensation budget is actually going.

How “Average” Is Calculated in Salary Surveys and Internal Data

Survey methodologies vary significantly, and understanding these differences matters when comparing your company’s planned increases to the “3–4%” benchmarks in the market.

The most common approach averages percent increases only among employees who received raises. This excludes workers who received no increase, which inflates the reported average compared to what the full population experienced. Some surveys report the average increase across the entire population, including zeros for those without raises—a more conservative figure.

Another distinction involves whether calculations include only retained employees or also factor in new hires and exits. Since new job offers often come with higher wages than internal raises, organizations that rely heavily on external hiring may see different patterns than those focused on retention.

For HR teams looking to validate assumptions and compare internal data to external benchmarks, tools like SalaryCube’s salary benchmarking product provide U.S.-focused, real-time reference points that don’t require survey participation or months of waiting for results.

Understanding methodology is essential—it explains why your organization’s 3.5% budget might compare favorably or unfavorably to headlines, setting up the next section on current U.S. benchmarks.

Current Benchmarks: What Is the Average Salary Increase Per Year in 2023–2025?

Based on data from major compensation consulting surveys, U.S. employers delivered approximately 4% to 4.4% average annual raises in 2023, dropping to around 3.6% to 3.8% in 2024, with 2025 projections and actuals tracking between 3.2% and 3.9% depending on the source. These figures represent medians and averages from large employer surveys, and individual organizations may fall above or below based on industry, performance, and talent strategy.

The broader macro context matters: a post-pandemic cooling labor market, moderating inflation compared to 2022–2023 peaks, and an employer focus shifting from aggressive hiring to cost control and retention. Analysis suggests that while average pay increases remain elevated compared to the pre-pandemic normal of around 3%, organizations are exercising more discipline as economic uncertainty persists.

Average Annual Increases by Year (2019–2025)

The following table summarizes typical salary increase patterns over the past several years, illustrating how factors like inflation and labor market conditions have driven changes in average wage growth.

Year	Typical Median Increase %	Typical Average Increase %	Key Drivers
2019	~3.0%	~3.0%	Pre-pandemic baseline, stable economy
2020	~2.5%	~2.8%	Pandemic disruption, hiring freezes
2021	~3.0%	~3.2%	Recovery begins, talent competition rises
2022	~4.0%	~4.2%	Inflation spike, tight labor market
2023	~4.0%	~4.4%	Peak inflation response, aggressive retention
2024	~3.6%	~3.8%	Inflation moderates, budgets tighten
2025	~3.3%	~3.5%	Stabilization, employer leverage improves
This historical view shows a temporary elevation in average yearly raise levels during high inflation years, now normalizing but still above older 3% norms. For HR teams, this trend line is most useful for long-term planning and explaining to employees why current budgets look the way they do compared to the previous year.

Differences by Industry, Role, and Region

The national average masks significant variation that makes sense to understand when setting your own organization’s targets.

Industry differences can reach 1.4 percentage points or more. Government and engineering/science sectors have delivered increases around 4.2% to 4.5% in 2025, while retail/customer service and education have tracked closer to 3.0% to 3.1%. High-demand fields where talent competition remains intense command premium salary increases.

Role-level variation means that critical skills and hard-to-fill positions often receive market adjustments of 6% to 8% or more, while roles with abundant talent pools may see increases at or below the company average.

Geographic differences between high-cost metros like San Francisco or New York and midwestern or southern markets can drive different pay increase strategies, particularly for remote employees whose compensation may be geo-adjusted.

For more accurate city- and industry-level segmentation, real-time salary data sources like SalaryCube’s Bigfoot Live provide daily-updated U.S. data instead of relying only on annual survey aggregates that may already be outdated.

These benchmarks are only a starting point—the next section explains the drivers behind why your organization may need to deviate from the average.

Key Factors That Influence Your Average Salary Increase Per Year

Organizations should not blindly copy the “3–4%” average from industry headlines. Instead, align salary increases with business performance, talent strategy, and market data specific to your workforce. This section breaks down the primary variables compensation teams should model when setting annual increase budgets.

Business Performance and Salary Budget Constraints

Revenue growth, profitability, and cash flow set the ceiling for overall salary budgets. In low-growth years, many employers target 2% to 3% average increases, while organizations experiencing strong results or facing aggressive retention needs may budget 4% to 5% or higher.

When base pay budgets are constrained, bonus pools and one-time lump sums can supplement lower base increases without creating long-term cost commitments. Modeling multiple budget scenarios (for example, 3%, 3.5%, and 4% options) with finance helps link each approach to likely talent implications like turnover risk or ability to attract new hires.

Inflation, Cost of Living, and Real Wage Changes

Inflation and cost of living adjustments (COLA) directly affect how employees perceive their pay raise. When inflation runs at 3%, a 3.5% increase delivers only 0.5% real wage growth—meaning employees’ purchasing power barely improves despite receiving a raise.

Recent U.S. patterns show inflation spiking to 6%+ in 2022–2023, moderating to around 2.5% to 3% in 2024–2025. During high-inflation periods, many workers felt their raises didn’t keep pace with rising costs, even when nominal increases exceeded historical averages. Labor statistics from the Bureau of Labor Statistics show real average hourly earnings up only about 1.1% year-over-year as of late 2025, illustrating the gap between nominal and real wage growth.

For some organizations, breaking out a COLA line item (separate from merit pools) provides transparency about how the company is responding to inflation, rather than rolling everything into a single undifferentiated number.

Market Competitiveness and External Benchmarking

Shifts in market rates—especially for in-demand roles—often drive above-average increases that can reach 6% to 8% or more for critical skills. When external data shows your pay has fallen significantly behind competitors, market adjustments become necessary to maintain the ability to attract and retain talent.

Traditional salary survey approaches involve annual or semi-annual participation, with results available weeks or months later. By contrast, real-time compensation intelligence platforms like SalaryCube’s DataDive Pro and Bigfoot Live provide daily-updated U.S. salary data that enables HR teams to validate market positioning without the lag.

Robust benchmarking allows compensation teams to justify why certain segments receive higher-than-average increases while staying within an overall budget—a critical capability when explaining decisions to leadership.

Internal Equity, Compression, and Pay Transparency

Pay compression occurs when new hires are paid close to or above longer-tenured incumbents in similar roles—a common result of years of incremental raises combined with rising market rates for external talent. Increased pay transparency (ranges posted in job listings, internal pay tools) is forcing many employers to allocate a portion of their annual increase pool specifically to equity adjustments.

Segmenting your increase budget into distinct pools helps address these dynamics:

Merit pool: Performance-driven increases based on job performance
Equity/compression pool: Adjustments to align internal relationships
Market pool: Adjustments to align with external data

Tools like SalaryCube’s compa-ratio calculator can systematically identify where adjustments are needed most, supporting fair and defensible decisions.

Job Performance and Differentiation Strategy

Most companies structure merit increases through matrices that link performance ratings and position-in-range to differentiated percent increases. A typical structure might deliver 1% to 2% for employees meeting but not exceeding expectations, 3% to 4% for strong performers, and 5% to 6%+ for top performers or those below their range midpoint.

This differentiation strategy directly shapes the realized average increase per year for different performance cohorts. An organization might budget 3.5% overall but deliver anywhere from 0% to 8% depending on individual performance and pay position.

Using defensible, documented criteria for performance-based differentiation supports fairness, compliance, and employee trust—especially important as pay transparency increases. Building on these factors, the next section covers how to turn them into an annual salary increase plan.

Building a Defensible Annual Salary Increase Strategy

This section turns benchmarks and drivers into a practical, repeatable process for HR and compensation leaders. The goal is both strategic alignment (with business and talent objectives) and operational excellence (accurate data, smooth execution).

Step-by-Step Process for Setting Annual Increase Budgets

Gather internal data: Collect pay, headcount, performance ratings, and turnover data with attention to data quality and coverage gaps.
Benchmark externally: Price your ranges and actual pay using sources like SalaryCube’s salary benchmarking product and Bigfoot Live for U.S.-focused, real-time data.
Align with finance: Model total salary budget envelopes under multiple scenarios (for example, 3%, 3.5%, 4%) and link each to projected talent outcomes.
Allocate pools: Decide how to distribute the budget among merit, COLA, market, promotion, and equity/compression pools based on your organization’s priorities.
Build merit matrices: Create or update guidelines by level, function, and location that translate performance ratings and pay position into specific increase percentages.
Model equity impact: Analyze outcomes by demographic segments (gender, race/ethnicity, tenure) to identify potential pay equity issues before finalizing decisions.
Prepare communications: Develop manager toolkits and employee-facing materials that explain the “why” and “how” behind this year’s approach.
Document methodology: Maintain an audit trail for future cycles, potential reviews, and compliance needs.

When supported by modern compensation intelligence tools, this process can be completed in weeks rather than months.

Using Real-Time Salary Data vs Traditional Surveys

The choice between legacy survey-based approaches and real-time compensation intelligence platforms significantly affects cycle time and decision quality.

Factor	Traditional Surveys	Real-Time Platforms (SalaryCube)
Update frequency	Annual or semi-annual	Daily updates
Speed to insights	Weeks of participation and analysis	Minutes with DataDive Pro / Bigfoot Live
Hybrid role coverage	Limited, often requires custom cuts	Built for blended and emerging titles
Team requirements	Often needs consultants or specialists	Designed for lean HR/comp teams
Real-time data helps organizations adjust salary increase strategies mid-year if market conditions shift or turnover spikes in specific roles or regions—something static annual surveys cannot support.

Watch interactive demos to see how SalaryCube supports this workflow for HR and compensation teams.

Segmenting Increases: Not Everyone Gets the Same Percentage

A flat 3% across the board is operationally simple but rarely strategic or equitable. Differentiation enables organizations to invest where it matters most while maintaining budget discipline.

An example segmentation approach:

Baseline pool (2.5%–3%): For employees meeting expectations in roles with adequate market positioning
Performance pool (4%–6%+): For high performers and employees in critical roles
Equity/market pool: Separate allocation for compression corrections and market adjustments

Modeling how these decisions affect the overall average increase per year and total spend helps ensure alignment with finance and avoids surprises. The next section addresses operational and communication challenges that arise when executing differentiated strategies.

Common Challenges and How to Address Them

This section provides practical troubleshooting guidance for HR and compensation teams implementing annual increase cycles in 2024–2025. Each challenge includes a concrete, actionable solution.

Gap Between Employee Expectations and Budgeted Averages

Many workers expect 5% to 8%+ pay raises while the company budgets around 3.5% to 4%. This gap creates frustration and can drive turnover, especially when employees compare notes with co workers or see higher starting salaries for new hires.

Solutions:

Communicate transparently about how budgets are set and how individual pay compares to market ranges—not just internal averages
Use total compensation storytelling that includes employee benefits, bonuses, equity, and flexibility rather than focusing solely on base salary percentage
Leverage data from SalaryCube to show employees where their pay stands relative to market, building trust through transparency

Managing Pay Compression and Equity Under Tight Budgets

Years of incremental raises can create situations where new hires command higher wages than longer-tenured employees, or where pay gaps emerge across demographic groups.

Action steps:

Identify compression hot spots by analyzing compa-ratios and time-in-role across your workforce
Ring-fence a portion of the budget specifically for targeted equity adjustments rather than spreading increases evenly
Monitor outcomes by gender, race/ethnicity, and other protected categories to surface pay equity risks before they become compliance issues

Consistent methodology and documentation support both compliance requirements and employee trust in the long run.

Communicating “Below-Inflation” Increases

When average annual increases lag recent inflation levels, employees may perceive their raise as a pay cut in real terms. This communication challenge requires careful handling.

Tactics:

Contextualize current salary increases against multi-year trends and future expectations—a 3.5% raise in a 2.5% inflation environment delivers real value
Highlight targeted investments in hot skills or critical roles and explain the rationale for prioritization
Offer non-salary levers where appropriate (development opportunities, internal mobility, enhanced benefits) without positioning them as replacements for fair pay

Data Gaps and Slow, Manual Benchmarking

Fragmented spreadsheets, outdated survey PDFs, and manual market pricing slow down the annual increase cycle and introduce error risk. Many organizations spend weeks or months on analysis that could take days.

Solutions:

Centralize compensation data in a single source of truth to maintain consistency and reduce manual work
Adopt tools like SalaryCube’s compensation benchmarking platform and Bigfoot Live to cut cycle time from weeks to days
Standardize templates and workflows for annual increases to reduce errors and enable further analysis year over year

Overcoming these challenges enables more strategic, defensible annual increase decisions that can withstand scrutiny from leadership and employees alike.

Conclusion and Next Steps

Average salary increases per year in the U.S. are currently hovering around the mid-3% to ~4% range, representing a stabilization from the 4%+ peaks during high inflation years. Smart organizations treat this as a reference point, not a rule—tailoring increases by performance, market data, equity needs, and business realities rather than applying a flat percentage across the board.

Real-time data and modern tools are now essential for defending these decisions to leadership and employees. The value of defensible, data-backed pay decisions has never been higher as pay transparency expands and employees become more informed about market rates.

Actionable next steps for HR and compensation teams:

Audit your last 2–3 years of salary increase outcomes against inflation, turnover, and engagement data to identify patterns
Run a current-state market competitiveness check for critical roles using SalaryCube’s salary benchmarking product
Redesign your merit and equity pools for the next cycle based on segmented needs rather than a blanket percentage
Update manager talking points to explain how your organization sets and applies the average annual increase
Explore related topics like pay equity analysis, salary range design, and compa-ratio best practices

If you want real-time, defensible salary data that HR and compensation teams can actually use, book a demo with SalaryCube or watch our interactive demos.

Additional Resources and Tools for U.S. Compensation Teams

These resources provide practical support for HR and compensation professionals looking to go deeper on annual salary increase strategy.

SalaryCube Bigfoot Live: Daily-updated U.S. salary data to validate or adjust annual increase strategies in real time, without waiting for annual survey cycles.

SalaryCube Salary Benchmarking / DataDive Pro: Price hybrid roles, build ranges, and export unlimited reports for leadership reviews—designed for lean HR teams without consultant dependency.

SalaryCube Free Tools: Compa-ratio calculator, salary-to-hourly converter, and wage raise calculator to model different average increase scenarios and support manager conversations.

Job Description Studio: Align job descriptions with market data before setting salary ranges and increases, ensuring your leveling and pricing are defensible.

Methodology and Security Resources: Understand how SalaryCube sources and validates data for defensible decision-making and transparent methodology.

Bookmark or share these tools with your broader HR and finance partners to standardize how “average salary increase per year” is defined and applied across your organization.