Employers adjust pay strategies amid economic and workforce shifts
Salary increases across many global economies have underperformed against initial forecasts for 2025, according to new findings from WTW’s Global Salary Budget Planning Report.
While actual increases remain above inflation in several regions, the overall pace of salary growth has moderated compared to previous years.
Salary increases dip below projections
The report noted that actual salary adjustments in countries such as the US, UK, Germany, France and China came in lower than anticipated.
For example, in the US, employers had planned for a 3.9% rise, but actual increases averaged 3.5%, down from 4% the previous year.
In contrast, salary movements in Canada and Saudi Arabia aligned with expectations.
Despite the shortfall in projected increases, average salary budgets are still elevated compared to long-term historical trends.
Before the pandemic, global salary growth commonly sat around 3%. Current figures reflect the broader economic environment, where organisations are managing cost pressures across wages, benefits and variable pay components.
Weaker financial performance and recession-related uncertainty were the most cited reasons for moderating salary budgets, followed by broader cost control measures, including rising input costs.
Inflationary conditions remain a central consideration in workforce planning, particularly as employers navigate fluctuating economic conditions.
Inflation easing, but volatility remains
Inflation data for the first half of 2025 showed variation across key markets.
In the UK, the annual inflation rate rose from 2.6% in March to 3.6% by June.
The Eurozone saw inflation ease to 2% in June, while the US experienced a rate of 2.7%. Canadian inflation stood at 1.9% in June, up slightly from earlier in the year.
The relationship between salary growth and inflation has not been uniform.
In Canada, salary increases of 3.5% significantly outpaced inflation.
However, in the UK, where both metrics stood at 3.6%, real wage growth has flattened.
WTW observed that salary growth and inflation often trend in the same direction, but are shaped by distinct drivers.
Inflation is typically linked to the cost of goods and services, while wage trends reflect shifts in labour market supply, demographic pressures and productivity changes.
Organisations revise compensation strategies
Employers in Australia and other markets are refining their approach to remuneration planning in response to these trends.
WTW’s research outlined several strategic adjustments companies are making to adapt to economic uncertainty and evolving workforce expectations:
- Planning for stability: Employers are preparing for less volatile salary growth in future years and are reassessing benchmarks to ensure competitiveness.
- Localised responses: Multinational firms are differentiating their compensation strategies across regions to reflect country-specific inflation and labour conditions.
- Broadening the rewards mix: Benefits such as superannuation, healthcare, and well-being programs are becoming more central to workforce strategies, even though they are not reflected in base salary budgets.
- Emphasis on employee value proposition: Career development and engagement initiatives are gaining prominence as retention tools.
- Flexible work models: Flexible arrangements and choice in benefits offerings are being used to attract and retain talent, with some employees willing to trade salary for greater autonomy over where and how they work.
- Prioritising critical roles: Limited salary budgets are increasingly targeted toward high-performing employees and roles deemed essential to business continuity.
WTW managing director Lori Wisper noted that organisations are placing more emphasis on non-salary investments in response to changing workforce expectations.
“As employers navigate continued economic uncertainty, ongoing increases in labour costs, and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises. These include career development, well-being, and flexibility because these are critical for performance, retention, and resilience in a shifting market,” she said.
