Merit Increase Data: What Employers Actually Give

Mercer’s QuickPulse survey put the average U.S. merit increase budget at 3.3% for 2025 — the same number employers delivered in 2024, and a figure that has now been flat for two consecutive years. For a $150k earner, that headline percentage translates to roughly $4,950 before taxes. The gap between what the slide deck promises and what lands in the paycheck is where most compensation coverage stops paying attention.

That 3.3% is not a raise in any meaningful sense once you account for what it is competing against. The Bureau of Labor Statistics reported wages and salaries rose 3.4% over the 12 months ending March 2026 — the broad market is moving at nearly the same pace, which means a median merit increase is a treadmill, not an escalator. The interesting question is not what the average is. It is what the distribution looks like, and what a single increase is actually worth across a remaining career.

What the surveys actually report

Start with the spread across the major surveys, because the single-number framing hides how much these sources disagree on method. Merit budgets and total salary increase budgets are not the same thing — the total figure folds in merit, general/COLA, and promotional adjustments, so it always runs higher than merit alone.

Sources: Mercer QuickPulse U.S. Compensation Planning Survey (Nov 2024); WorldatWork 2025-2026 Salary Budget Survey (Jul 2025); BLS Employment Cost Index (Apr 30, 2026).

WorldatWork’s 52nd annual Salary Budget Survey, covering nearly 17 million employees, reported that U.S. average overall salary increase budgets fell from 3.9% in 2024 to 3.7% in 2025, with a further projected decline to 3.6% for 2026. The merit-only component sits lower. Mercer’s read of 3.3% merit comes from more than 1,000 leaders across 850 companies; WorldatWork’s median merit budget lands at 3.5%. The honest figure is a range: U.S. merit increase budgets cluster between 3.3% and 3.5% for 2025, depending on whose methodology you trust and whether you want a mean or a median.

Neither number describes what a strong performer receives. Budget figures are pools, and pools get allocated unevenly. A 3.3% budget at a company that ranks employees into tiers can mean 1.5% for the bottom band and 5–6% for the top — the average is an accounting artifact, not a personal forecast. This is the distinction most coverage flattens, and it is the one that matters most for anyone reading their own review in the context of a COLA versus merit increase comparison.

The merit increase versus the alternatives

An internal merit increase is one of several ways base pay moves, and it is reliably the weakest. Consider the competing mechanisms an employer has available, because each carries a different typical magnitude.

A promotion — a change in title and scope, not just pay — drew an average increase budget of 3.2% in 2025 per WorldatWork data, with organizations projecting 3.0% for 2026. That figure understates the real promotional bump for any given individual, because promotion budgets are pools spread across far fewer employees than merit pools; secondary analysis from compensation consultancies places typical promotional increases in the 6% to 12% range when one actually occurs. A market adjustment — an employer-initiated correction to bring a salaried employee up to market rate, distinct from performance pay — moves outside the merit cycle entirely and is granted at the employer’s discretion. And a cost of living adjustment (COLA), an across-the-board increase tied to inflation rather than performance, is folded into general increase budgets that WorldatWork pegs near 1.6% of the total figure for 2026.

The external market remains the strongest lever, though its edge has collapsed. ADP Pay Insights reported that in January 2026, job-changers saw 6.4% year-over-year pay growth against 4.5% for job-stayers — a gap of just 1.9 percentage points, the narrowest since November 2020. During the Great Resignation peak, that spread ran 8 to 10 points. The switching premium has not disappeared, but the math behind job change versus promotion earnings has shifted decisively toward staying put and negotiating internally.

Sources: WorldatWork 2025-2026 Salary Budget Survey (Jul 2025); Mercer QuickPulse (Nov 2024); ADP Pay Insights (Jan 2026). Per-event promotion range from compensation consultancy secondary analysis; pool figures reflect budget allocations, not individual outcomes.

What a single increase is worth: the Finluxy Raise Lifetime Value

A percentage on a slide tells you almost nothing about lifetime impact. The reason a 3.3% merit increase feels small and is small in the current year, yet still compounds into a meaningful number, is that it becomes the new base on which every future increase is calculated. Quantifying that requires net present value (NPV) — the present-day worth of a future stream of money, discounted to account for the time value of cash.

The Finluxy Raise Lifetime Value is the NPV of a salary increase, assuming it compounds annually with future raises and is discounted at 5% over a worker’s remaining career, expressed in today’s dollars. The mechanics use the present value interest factor of an annuity (PVIFA) — a multiplier that converts a recurring annual amount into a single present value. The table below runs the calculation for three representative $150k+ scenarios, applying the merit increase to a $150,000 base.

Calculation: Finluxy Raise Lifetime Value = annual increase × PVIFA(5%, n). PVIFA factors standard. 37% effective tax rate is illustrative for a $150k+ marginal earner; actual rate varies by state and filing status. Increase = 3.3% × $150,000 = $4,950.

The age-35 case is the headline: a single 3.3% merit increase, the most ordinary outcome in the entire dataset, carries a gross Lifetime Value north of $76,000 and a net figure near $48,000 once a 37% effective tax bite is applied to the marginal dollars. That is the asymmetry the percentage hides. The same increase at 55 is worth roughly half as much, which is the quantitative case for why compounding a raise early in a career matters more than any later catch-up. The full framework for this is laid out in the raise math lifetime value guide.

The number nobody adjusts for: taxes on the margin

Every figure above is gross until the marginal tax rate touches it. A $150k+ household sits well into the federal brackets where additional earned income is taxed at 24% federally and frequently higher once state income tax and payroll components stack on top. The merit increase does not arrive at the household’s average tax rate; it arrives at the marginal rate, the rate on the last dollar earned — and for high earners that distinction routinely erases a third or more of the headline figure.

Run the age-35 scenario through it. The $4,950 gross increase, taxed at a 37% effective marginal rate, nets roughly $3,119 in the first year. That is the payment that actually compounds. The Lifetime Value math respects this: the net column in the table above is the honest number, and it is the one worth carrying into any conversation about net take-home on a raise by state, where the spread between a no-income-tax state and a high-tax state can swing the net figure by several thousand dollars a year on the same gross increase.

Methodology

What this means for a $150k+ household

The strategic takeaway sits at the intersection of two facts the data makes plain. First, the merit increase is structurally weak — 3.3% to 3.5% is barely keeping pace with a 3.4% market, so accepting the default merit number is accepting a real-terms standstill. Second, the external escape hatch has narrowed: the job-changer premium of 1.9 percentage points is the smallest in over five years, which means leaving for a raise no longer carries the windfall it did three years ago.

For a high earner, that combination shifts the calculus toward two underused levers: the promotion, where the per-event increase of 6% to 12% dwarfs the merit pool, and the market adjustment, which lives outside the performance cycle entirely and is won by documentation rather than by tenure. Both reward the employee who can quantify their value before negotiating rather than waiting for the annual cycle to allocate a pool. The Lifetime Value framework is the argument to bring into that room: a one-time push that converts a 3.3% default into a 7% outcome at age 35 is not worth the difference in this year’s paycheck — it is worth the difference compounded and discounted across thirty years, which lands in the tens of thousands of net dollars. For households at this income level, where the marginal tax rate already claims a third of every additional dollar, the negotiation is not about the raise. It is about which side of that asymmetry you choose to stand on, and whether the hour spent preparing the case is the highest-return hour you will work all year.