Salary increase budgets at U.S. companies are projected to remain stable at 3.7% in 2025, up from 3.5% in 2024, according to the latest Salary Budget Planning Report from WTW. Many organizations are thriving without significant challenges in attracting or retaining employees, leveraging flexible work options, benefits and perks to keep their workforce happy. If salary raises aren’t in the budget for 2025, focusing on rewards and recognition is just as crucial, while keeping costs in check.
Payroll expenses have surged by 5.5% this year, with total payroll costs climbing across the board. Not all organizations can maintain steady budgets and offer higher salary packages—weak financial performances and cost management concerns are the top reasons companies have made plans to cut budgets. Organizations are striking a careful balance between compensation and benefits to adapt.
Employees prioritize flexible work options as hybrid models emerge
Flexible work is reshaping modern priorities, putting freedom and balance ahead of paychecks. Research consistently highlights the effectiveness of flexible options in boosting employee retention, engagement, and well-being. Researchers from the University of Pittsburgh have highlighted that state-level analysis shows that flexible work is associated with lower depression rates and higher job satisfaction.
Millennials and Gen Z demographics have been championing hybrid models of employment for some time, resonating with the nation’s evolving and progressive commitments on workplace wellness. The rise of the four-day workweek has been the most visible indicator of this shift, and now nearly one-third of U.S. companies are exploring this option. Choices like these allow employees to recharge during unscheduled hours and tackle Monday’s goals with a renewed focus.
According to a 2022 Gallup analysis, engaged employees required a significantly smaller pay increase—9% less—to decline a new job offer compared to those who felt disengaged in their current roles. Helping employees find value and space away from their work is key to achieving this balance.
Consider a ‘flat organizational structure’ where every voice is heard
Creating a thriving work culture with high retention often means adopting a flatter organizational structure, giving employees a voice and minimizing rigid, results-focused hierarchies. It’s the little things that make a big difference: celebrating major achievements, handling concerns and disputes with care and practicality, and openly discussing mental health and well-being. For some, the occasional word of thanks from the boss is all it takes to feel valued.
Regular and pervasive workforce reductions and layoffs can have a concerning adverse effect on internal growth, and these decisions should always be made strategically. As Laszlo Bock, former senior VP at Google, told The New York Times, layoffs “create an environment where people worry it might happen to them next.” Without clear reasons and circumstances, such difficult decisions can “degrade trust in management,” according to Bock, and lead to anxiety and thoughts of quitting.
Employees can also often feel frustrated when their good ideas go unheard. Some of the biggest corporate success stories of the modern era have come from open, cross-functional approaches like the “Spotify model.” This model, which helped transform the audio and music app into a $90-billion giant, encourages employees to take risks, collaborate across departments, create projects that match their skills and expertise, and operate with less top-down constraint. Where creativity thrives, so does organizational ambition.
Providing health benefits was the top priority for employers in 2024
Listening to and understanding employees’ needs and effectively rewarding them is equally crucial for building strong workplace relationships. Recent concerns about health care affordability and access have highlighted the role of workplaces as essential support structures. Employees who feel supported outside the office are more committed to making a difference on the clock. Now, more than ever, health benefits are a necessary offering, as even those employees with protection aren’t necessarily in the clear. The average cost of employer-sponsored health coverage is expected to rise by 9% in 2025, increasing the per-employee expense to over $16,000 annually and cinching salary budgets even tighter.
Health benefits, such as gym memberships, private medical insurance, and wellness programs, are all designed to build commitment, allowing workforces to thrive when their work is valued and rewarded. A 2024 study from Aon revealed that managing health benefits is a top priority for employers, as health care costs were expected to rise at a rate four times that of general inflation. In addition, 1 in 5 U.S. workers spends over 10% of their income on health care. Secure support can help ease the burden. Attractive packages and benefits always attract top talent, allowing them to flourish in an ambitious and supportive environment.
In challenging financial times, where budgets are tight and raises are scarce, adapting to new preferences enables us to invest in well-being—providing support and rewards beyond pay to foster a motivated workplace. The modern worker seeks meaningful and ambitious tasks, prospers on flexibility, and values professional development. Listening to and interpreting these signs of the times is crucial for maintaining employee trust and paving a new path forward.
Photo courtesy of Zamrznuti tonovi/Shutterstock
