Early 2025 Salary Budget Projections Tempered by Economic Concerns

Supply costs and economic downturn concerns are up, while inflation and labor market worries have eased, both globally and in the U.S., per Willis Towers Watson’s July 2024 Salary Budget report.  

Why it matters: Shifting macro concerns are driving a notable decline in projected salary budget growth for next year - from a 2022 peak of 4.5% to an expected 3.8% for 2025. Most companies anticipate they will maintain their current headcount amid pressure to manage labor costs. 

• Salary budget growth slowed in 2024. 
  
  
  • 43% of companies reported lower actual budgets in 2024 compared to 2022 and 2023 actuals. 
• Further cooling in 2025 is predicted.
   
  • 14 of the 15 largest economies are projected to have lower salary budgets for 2025 (Japan reporting a slight uptick).
     
  • 30% of respondents are planning smaller budgets than were previously projected a few months ago. 
     
• Balancing cost containment with talent investments will be tricky. The survey measured how key strategic planning influences have shifted over the last six months. For U.S. firms:
   
  • Supply chain cost concerns now top the list of priorities with 38% of organizations worried about this compared to 28% six months ago. 
    
    
  • Fears of a recession or weak financial results increased from 32% to 36%. 
    
    
  • Inflationary pressure concerns dropped from 55% to 34%. 
    
    
  • Employee retention and tight labor market concerns dropped 21 percentage points since December, but still ranked #4 in top-of-mind worries. 

What to watch: After several high salary budgets and a resilient labor market, employees may anticipate continued increases, but employers are tightening their belts. HR teams should focus on business priorities when allocating salary budgets to groups most critical for retention.