New report shows 'unexpected rise' in merit salary
Budgets for salary increases in Australia are expected to remain steady in 2025 as employers roll back their predictions on merit budget hikes.
Mercer's latest Australian Salary Outlook 2025 revealed that the overall salary increase budget is forecast to remain at four per cent in 2025.
This is just as high as the actual and budgeted median total salary increase in the past two years, according to the report.
"As employee turnover eased back to pre-pandemic levels and demand for new hires begins to soften, the overall salary increase budget stabilised in 2024 and is forecast to remain at four per cent in 2025," the report read.
But while the median total salary increase remained stable, the actual merit increase budget hit a 10-year high of 3.8%.
"This unexpected rise in salary adjustments can be attributed to the challenges businesses faced in attracting and retaining talent, as employee turnover reached peak levels, compelling many to offer higher wages to remain competitive," the report read.
"Additionally, the surge in the cost of living prompted employers to adjust salaries to help employees manage increased expenses, reflecting a broader commitment to employee well-being in a tightening labour market."
The report, however, noted that merit salary budgets will likely decline to 3.6% in 2025 due to inflation and stabilisation of employee turnover.
According to Mercer, employee turnover in Australia declined to 18.6% in 2023, down from the 21.4% the year prior.
This trend extended until 2024, with average turnover at 10.8% in the first half of the year.
"Employees are looking for job stability in uncertain times and are less inclined to jump ship," the report read. "As workers seek security in their roles, organisations are finding themselves in a new landscape where retention takes precedence over recruitment."
In fact, Mercer revealed that only one in four employers in Australia have plans to add new staff in 2025, with 30% remaining undecided.
"With employee retention strengthening, the urgency to seek external talent has diminished and, coupled with a subdued economy, organisations are now more focused on managing costs and optimising their existing workforce rather than aggressively pursuing new hires," the report read.
