Pay Raises Shrink—Along with Employee Compensation Satisfaction

Salary raises fell for the second year in a row in 2024—shrinking 42% since 2022—while 4 in 10 workers didn’t receive a raise in the past year, new data finds.

BambooHR, an HR platform company based in Draper, Utah, found that for the 60% of workers who did receive a raise in 2024, the average increase was 3.6%. This marks a continued decline from 4.6% in 2023 and 6.2% in 2022—a 42% decrease over two years.

BambooHR’s report is the latest to find that pay raises have decreased over the past year—and will likely remain low in 2025. For instance, data from compensation firm Payscale this summer found that U.S. employers are planning for 3.5% pay raises on average next year—a dip from the past couple of years—due to a cooling labor market. Actual salary increase rates for U.S. employers, according to Payscale, were 4% in 2023 and 3.6% in 2024.

Anita Grantham, head of HR at BambooHR, said these shrinking pay raises are mostly coming from organizational necessity due to financial constraints and concerns.

“Businesses are trying to manage increasing costs across the board—everything from software to operations—while maintaining profitability,” she said. “Getting by with minimal employee raises is unfortunately becoming the only way for many companies to keep things running without resorting to layoffs.”

A Concern for ‘Every HR Leader’

Slowing pay raises come as employee satisfaction with compensation is dropping—and just as financial stress is increasing. One-third of employees (33%) feel negatively about their current financial remuneration—a significant jump from 23% last year—and 50% struggle to make ends meet due to rising costs, BambooHR found.

The data also found that just over half of workers (56%) feel senior employees lack an understanding of living on a typical wage.

While it’s not particularly shocking that compensation satisfaction is falling as pay raises flatten, it is a trend that “should concern every HR leader,” Grantham said.

“When employees feel undervalued in their compensation, they become less engaged and start quietly quitting,” she said. “The data shows there’s a real connection between how people feel about their pay and their mental health that we can’t ignore, especially among younger generations. If we don’t address this decline in satisfaction, we’ll see more employees either mentally checking out or actively looking for new opportunities.”

Another concerning compensation area organizations should pay attention to: the gender pay gap. The BambooHR data found that men are more likely to receive raises, they receive bigger raises, and they feel more secure and satisfied regarding their compensation compared with women. Specifically, 64% of men received a salary increase in the past year, compared with 55% of women, and men’s average increase was 4.8%, compared with women’s 2.7%, the analysis found.

Grantham said the continued gender pay gap is “a persistent blind spot for leadership.”

“[Employers] still struggle to recognize the impact when women take on additional responsibilities compared to their male counterparts,” she said. “We need to be better at distributing additional tasks equitably across all employees, not just to those who volunteer. It’s critical leaders actively manage this dynamic and ensure we’re not perpetuating pay disparities through how we assign work.”

Employer Considerations

Overall, experts say employers need to consider the consequences that smaller—or no—pay raises could have on their organizations.

While Grantham said pumping the brakes on raises “might help companies maintain short-term stability,” company and HR leaders “need to be honest about the long-term impact on their workforce.”

“Companies need to find ways to prioritize competitive pay for their people who are driving the business forward,” she said. “Small raises spread equally across the organization often lead to mediocrity because they don’t incentivize going the extra mile.

“While money isn’t the only way to recognize employees, it’s crucial that we connect compensation to our mission and ensure leaders are actively recognizing their people’s contributions. Sometimes, this means making tough choices to provide meaningful raises to key contributors rather than minimal increases across the board.”

At the same time, if raises aren’t feasible, employers can consider other incentives to help attract and retain employees.

“Many companies have permanently adopted hybrid and more flexible remote work policies and motivational engagement programs where greater flexibility and worker satisfaction is projected,” Jeremy Feinstein, managing director at Empsight, recently told SHRM.