Will ‘Moderate’ Pay Raises Be Enough?

On the surface, it would seem to be enough: Nearly every company is planning on handing out raises both this year and next. These bumps will be above the rate of inflation. But will they be enough to excite employees?

In the latest Korn Ferry Total Rewards Pulse Survey, 43% of leaders said their organizations will provide increases in 2025 to at least 95% of their employees. Only 1% of firms said they weren’t giving out raises to anyone. The data for next year is similar: 44% of organizations will provide increases to at least 95% of employees, with only 1% of firms handing out none. But the average estimated raises are lower—in some cases, far lower—than what companies have been paying recently.

Experts say that leaders should talk with the workforce about the issue now, even if employees might not like what they hear. “Base-pay increases are set relative to the cost of labor, not cost-of-living or inflation increases,” says Tom McMullen, leader of Korn Ferry’s North America Total Rewards expertise group.

Companies are pegging the average raises for this year and next to forecasted base market salary increases in the country where workers are located. Estimates in the United States are pretty typical of what is happening in other nations: American firms plan 3.5% raises in both 2025 and 2026, slightly ahead of the 2.9% current rate of US inflation. This forecasted salary increase figure remains the same up and down the corporate ladder, from executives to middle managers to junior-level employees.

The 3.5% average isn’t particularly low, but it’s lower than what companies have been paying recently. Median wages and salaries increased 3.9% and 5.1%, respectively, for the twelve-month periods ending in June 2025 and June 2024. Even those figures are considerably lower than they were right after the pandemic, when some industries were paying out raises of 10% or higher to attract or retain select workers.

The slower raise growth also comes as many consumers worry that inflation will eat away at their purchasing power, making them feel poorer. Indeed, in an earlier Korn Ferry survey of workers, 70% said they worried about the cost of living outpacing their current salary, and 35% believed they were being paid below the value of their skills.

Besides wages, various other current workplace issues could frustrate employees. Promotions have declined, in some cases by considerable margins, with only 1 in 10 employees getting promoted annually, down 23% from 2022 figures, by some estimates. Company bosses want to see their employees back in the office: 70% planned to maintain or increase the number of mandatory office days in 2025. At the same time, workers are being pushed to be more productive, and the specter of AI changing their role—or making it obsolete—is looming.

To be sure, some leaders will believe that workers should feel fortunate to be getting any increase at all. Costs at many firms are on the rise, whether due to tariffs, big investments in technology that haven’t yet paid off, or both. At the same time, sales growth has become hard to find in many industries. Raises, these leaders feel, shouldn’t be considered an entitlement. One large-company CEO recently told employees that they were free to look elsewhere for work if they weren’t happy with the firm’s movement away from a culture rewarding loyalty and tenure. “In a time when a lot of companies are not posting optimal earnings, I don’t think anything should be automatic these days,” says Dennis Deans, Korn Ferry’s global human resources business partner.

Still, the onus is on leaders to be transparent about their pay decisions, says Richard Marshall, global managing director of Korn Ferry’s Corporate Affairs and Investor Relations Center of Expertise. After all, they want to manage the budget of what often is their largest operating expense. “It will be important to set expectations up front on what the range is,” Marshall says. For example, if the company believes that holding the line on pay now will help prevent future layoffs and solidify the company’s stock price, then leaders should convey that message to employees.

What’s more, about half of respondents, 46%, said they were having discussions about whether to adjust annual incentive plans in light of the current economic uncertainty. If an organization feels compelled to increase pay when inflation accelerates, McMullen says, they might consider using a variable-pay program instead of a permanent and ongoing increase in base salary. Companies could look at alternatives to straight salary increases, such as sign-on bonuses or referral and retention awards. All of those have seen increased usage since the pandemic, and none is necessarily permanent. “Organizations don’t want to be paying high salaries when inflation drops again—and then face the prospect of layoffs,” McMullen points out.

And organizations don’t have to limit their efforts to increasing compensation. Strengthening internal training and development programs could also help workers who feel frustrated by giving them opportunities for career advancement, Deans says.

Learn more about Korn Ferry’s Total Rewards capabilities. 

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