Top trends in total rewards

Employers expect to increase their compensation budgets by 3.3% for merit increases and 3.7% for total salary increases for non-union workers in 2025, according to a Mercer report. That mirrors the actual merit and total salary increases awarded in 2024, which were 3.3% and 3.6%, respectively. 

Of the more than 850 U.S. organizations surveyed, 69% said they were confident in their budget predictions. While similar to last year’s increases, the projections remain above historical trends, Mercer said. 

Budgets vary by sector. The technology sector expects above-average compensation budgets: increases of 3.5% for merit and 3.8% for total compensation. Meanwhile, the healthcare services industry reported below-average increases: 3% for merit and 3.5% for total compensation, Mercer said.

Employers recognize the need to invest in their workers to improve retention, given the tight labor market and low levels of unemployment, Lauren Mason, Mercer’s U.S. workforce solutions leader, said in a statement. 

“To remain competitive in this environment, employers will need to look beyond compensation and transform work itself to improve the employee experience and unlock greater productivity,” Mason said. 

To that end, companies intend to promote 9.3% of workers this year, compared with 8% in 2024. Many will take a flexible approach to promotions by conducting them as needed or twice or more a year, per the report. 

Some employers also are factoring pay transparency into their compensation strategy. Eighteen percent of companies said they share pay ranges with both workers and candidates, and another 27% are considering doing so, Mercer found. 

Part of that drive could be tied to employee engagement and happiness. 

“When employers aren’t clear about pay, employees create their own narratives — and those stories can be more negative than the reality,” Mason said. “Despite significant investment in pay in recent years, employee satisfaction with fair pay is still on the decline.”

Yet, while many employers say they include salary ranges on job listings, 63% don’t share them with current employees, according to the results of a survey by Aon plc, a global professional services firm.

The average cost of employer-sponsored health insurance climbed to $16,501 per employee in 2024, up 5% from the previous year, according to results from Mercer’s 2024 National Survey of Employer-Sponsored Health Plans released Wednesday. Employers expect it to climb another 6% in 2025, Mercer said. 

That increase is partially driven by prescription drug cost, which is the fastest-growing cost segment, according to a news release. Pharmacy benefit cost increased 7.7% this year, after rising 8.4% in 2023, propelled by greater use of GLP-1 drugs for diabetes and weight loss, the survey of 2,194 employers found.

GLP-1s are nearly universally covered for diabetes but not yet for obesity treatment, although that share is growing. In 2024, coverage for obesity drugs increased to 44% among employers with 500 or more workers, compared to 41% last year, and 64% among the largest companies, up from 56% the previous year, according to the release.

“Employers doubled down on strategies to manage cost growth while finding ways to improve key benefits to support employees and their families in 2024, including expanded coverage for GLP-1 medications and fertility treatments,” Ed Lehman, Mercer’s U.S. health leader, said in a statement. 

Tracy Watts, Mercer’s national leader for U.S. health policy, said GLP-1s could “turn the tide on the obesity epidemic and positively impact downstream medical costs.”

“Cost is clearly a concern, and employers are adding authorization requirements to ensure the medications are used by members who will benefit the most,” Watts said.

Drug prices are among the biggest threats to healthcare affordability, according to 99% of the nearly 190 employers surveyed recently by the National Alliance of Healthcare Purchaser Coalitions. 

In the NAHPC survey, about 46% of employers said they cover GLP-1s for obesity, and another 21% said they are debating doing so in the next three years. Of those companies either offering or considering GLP-1 coverage for obesity treatment, many said they might take steps to manage costs, such as limiting access to those with chronic conditions or a certain body-mass index.

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By Included Health

The delicate balance between offering competitive benefits and managing the impact of escalating healthcare expenses requires strategic planning and innovative approaches. Employers are facing an average 5.8% rise in healthcare costs in 2025, which is due to several factors including:

High inflation, rising wages, and higher interest rates

• Impact on insurance premiums: Higher inflation and interest rates can lead to increased insurance premiums, as insurers adjust rates to cover rising costs, thereby increasing the overall cost of providing healthcare benefits for employers
• Increased labor costs: As wages rise, so do employers' payroll expenses, including the costs of providing healthcare coverage to employees
• Cost of borrowing: Higher interest rates can raise borrowing costs for employers, affecting the financing of healthcare benefit programs

Workforce shortages

• Competitive labor market: To attract and retain talent in a competitive market, employers may need to offer higher wages and enhanced benefit packages
• Increased overtime: Employers often pay a premium for overtime hours, which increases payroll expenses, including healthcare benefits costs
• Decreased productivity: Chronic stress and burnout, often associated with decreased productivity, can exacerbate mental and physical health issues, resulting in higher healthcare costs for both employees and employers

Delayed or deferred care

• Increased severity of health conditions: Delaying medical care can worsen health conditions, leading to more complex and costly treatments when care is finally sought
• Emergency room visits: Delaying medical care can result in emergency room or urgent care visits for conditions that could have been treated more affordably by a primary care physician
• Impact on health insurance premiums: Higher healthcare costs from delayed care can lead to increased health insurance premiums for employers as insurers raise rates to cover these expenses

These trends pose a significant challenge for employers striving to provide attractive benefit packages, without compromising their bottom line. As healthcare costs outpace inflation, businesses must proactively address the impact on their employee benefit offerings. 

3 strategies for optimization

#1: Streamline benefits for long-term value

• Simplify the employee healthcare experience: By providing all-in-one healthcare with dedicated access, answers, and advocacy, there is a clear path forward for employees to understand their benefits and engage with them easily
• Deeper partner engagement: Comprehensive benefits offers a chance to deeply engage with partners that drive long-term strategic value, rather than managing multiple vendors in a tactical way
• Provide clearer understanding of benefits: Included Health provides employees easy access to information, quality care, and real-time assistance, empowering them to make informed decisions about their healthcare needs, helping reduce unnecessary healthcare utilization and costs

#2: Embrace a beginner’s mindset

• Question existing practices: Going back to the beginning and digging into what your benefits solutions are actually trying to achieve helps ensure that resources are allocated appropriately towards meeting the specific healthcare needs of employees
• Identify inefficiencies: Taking a step back and looking at your benefits ecosystem holistically can lead to a discovery of overlooked opportunities for cost savings
• Explore new, cost-effective approaches: Implementing creative solutions like combining Virtual Primary Care with healthcare navigation services provides employees with more accessible and personalized healthcare options, leading to better health outcomes.

#3: Don’t underestimate the power of strategic partnerships

• Employee engagement and satisfaction: Partnering with reputable partners who build trust with members, while delivering high-quality care, can enhance overall job satisfaction and loyalty
• Expertise and innovation: Partners bring specialized knowledge and expertise in specific benefit areas, helping address the unique needs of your organization
• Customization and flexibility: Customizing benefits packages to meet the unique needs and preferences of your workforce, increases employee satisfaction, morale, and retention, ultimately leading to a more engaged and productive workforce

Choosing an innovative partner

Navigating the complexities of rising healthcare costs requires employers to adopt a strategic and innovative approach to benefit solutions. By re-evaluating benefit offerings, embracing a beginner's mindset to identify inefficiencies, and leveraging strategic partnerships, employers can optimize their benefit packages while managing costs.

Included Health offers a seamless integration experience you can both feel and see. Our app and care team deliver a unified experience without seams, elevating employee experiences tenfold. Trusted by 300+ employers of all sizes, including many Fortune 100 companies, our commitment to industry-leading care sets us apart.

• 4.95/5 stars member experience
• 60% of members are repeat users within the first 6 months
• 6-10% lower healthcare trend than the national average

Learn more about our flexible solutions at https://includedhealth.com/employers/better-benefits/. 

Starbucks is increasing the amount of paid leave it offers to birth parents from six weeks to 18 weeks, according to a press statement. The expanded parental leave is available to workers who work more than 20 hours a week. 

The chain is also raising the paid parental leave offered to nonbirth parents, including adoptive or long-term foster parents, from six weeks to 12 weeks. 

Starbucks CEO Brian Niccol said that improving Starbucks’ reputation as an employer in the retail sector is a part of the brand’s reinvention.

Starbucks said it made the change after hearing feedback from employees who said its six-week program was insufficient. Starbucks has long positioned itself as a leader in the foodservice industry for providing benefits to its employees. The expansion of parental leave will help preserve that reputation. 

The chain also has expanded the average weekly hours worked by its employees, a move that has lowered turnover and training costs while increasing pay for workers, said CFO Rachel Ruggeri on the coffee giant’s October earnings call.

Many of its franchised competitors are not immediately responsible for the benefits of hourly front-line workers, limiting the number of restaurants that are proper comparisons with Starbucks. Chipotle, another major company-owned brand, offers up to 12 weeks of maternal and four weeks of paternal leave.

Increased benefits could help with labor retention, while also improving consumer perceptions of a brand damaged by a multi-year battle with thousands of its unionized baristas.

During the acute period of the restaurant industry’s labor shortage in 2021 and 2022, many brands raised pay or added new benefits. Starbucks was no exception. But after the spread of Starbucks Workers United’s campaign outside of Buffalo, New York, the union and federal regulators said the company used expanded benefits as a disciplinary tool to pressure workers not to form unions.

With labor market conditions cooling, there’s less immediate economic pressure on brands to improve working conditions or raise pay. The chain is currently engaged in bargaining with Starbucks Workers United over a framework for store-by-store contracts, which could reshape the benefits available to thousands of its employees.

To sustain their workforces as labor demographics skew older, employers must foster age-inclusive work environments and tailor benefit packages to meet older employees’ needs, according to a report by Bank of America and the Global Coalition on Aging.

Examples of benefits that best support older workers’ needs include: Flexible work and phased retirement options, caregiving and grandparents’ leave, menopause support, and assistance with financial and health care literacy, according to the report, which was shared with HR Dive on behalf of Bank of America.

To cultivate an age-inclusive workplace, managers should focus on ways to engage multigenerational teams and promote the sharing of knowledge and expertise, the report recommended. Companies can do this by being open to employing older workers instead of dismissing them as overqualified, and fostering collaboration and two-way mentoring between older and younger workers.

The aging workforce is a trend that consultants and academics have watched with interest for some time.

Six years from now, workers 55 and older will comprise a quarter or more of the the workforces in G7 countries (U.S., Canada, U.K., Germany, Japan, France and Italy), a nearly 10% jump from 2011, according to a July report from global consultancy firm Bain & Co.

In the U.S., workers already skew older. As of 2023, adults aged 65 and older made up nearly 30% of the American workforce, a jump from 23% in 2000, the Employee Benefits Research Institute reported in the spring.

Given the shift, now is the time to “let go of generational stereotypes, focus on employment factors that matter across all ages, and take a nuanced approach to understanding how different factors interact and affect each individual’s decision to stay or go,” the report emphasized.

Combating ageism, in particular, makes business sense, BofA and GCoA said. Ageism against those over 50 cost an estimated $850 billion in 2018, they pointed out.

That said, strategies providing benefits which factor in age and individual needs are key to productivity and retaining workers, the report stated: 60% of employees say their benefits package makes them feel more valued, and 80% choose additional benefits over total compensation, research by BofA and GCoA found.

Benefit packages tailored to older workers are especially important because they allow older workers to work longer and prepare for retirement on their own terms, the report said.

For many employees, this is critical. Nearly 60% of U.S. workers at mid- and large-sized companies lack confidence in their financial ability to retire at the typical age (65 to 67), according to a recent survey by Economist Impact and TIAA subsidiary Nuveen. The sentiment was stronger among Black, Hispanic and Asian workers, compared to White workers, the firms said.

Flexible work and phased retirement are two win-win options, BofA and GCoA pointed out. These options provide older workers with additional financial support and allow them to stay engaged longer, while enabling employers to continue to benefit from their experience and expertise, the report explained.

Career extension — offering employees opportunities to expand their responsibilities within their current roles — is another mutually beneficial option, the report noted. In this respect, career extension has been associated with higher job satisfaction, increased engagement and better employability among older workers, it said.

However, one demographic faces the brunt of both ageism and sexism — older women, who experience more challenging stereotypes than their male counterparts, the report said. To address a sensitive but related issue, employers can provide menopause benefits and policies that change company attitudes toward it, BofA and GCoA suggested.

Although most adults don’t feel comfortable discussing menopause, according to a 2022 survey by Ipsos, ignoring it comes at a cost. Symptoms associated with menopause add up to $1.8 billion in lost work time each year in the U.S., a Mayo Clinic study found.

Women also bear the brunt of caregiving, making up 75% of the caregiving demographic, the BofA/GCoA report said.

Caregiving can require as many hours as full-time work, but employers have a range of options they can offer to support caregivers, including leave policies that allow employees to take time off for themselves or loved ones, options for remote work, increased paid time off, emergency backup care, and respite care, the report said.

Generation Z candidates highly prioritize job stability and work-life balance as nonnegotiables when considering full-time roles, according to a report from Symplicity.

In a survey of more than 2,700 students, 94% pointed to job stability while 90% identified work-life balance as key factors when thinking about what’s “essential” for work.

However, early talent said they’re wary of certain company cultures, particularly those that call their workplace culture a “family.” Gen Z workers said this sticks out as “a signal of blurred boundaries and poor work-life balance,” according to the findings.

During the hiring process, Gen Z candidates also emphasized speed, with 81% saying they expect the hiring process to be completed in a month.

Early-career talent said transparency around compensation and proactive communication throughout the recruitment journey remain essential, too. At the same time, 61% said they continue to explore other offers even after accepting a position. This highlights the need for consistent engagement through onboarding, Symplicity said.

Notably, Gen Z workers are focused on skill-building, according to Symplicity, which has been reflected in other reports. For example, many young workers are turning to side hustles to build skills, according to a Quicken report. Young talent want to take advantage of upskilling opportunities to future-proof their careers and reduce financial pressures, the report found.

Gen Z employees are also taking charge of their own work-life balance, according to a SurveyMonkey survey. Younger workers are more likely to take quiet vacations and use sick days for time off or mental health days. 

However, Gen Z workers are struggling to find a foothold, with business owners saying young talent have issues with reliability and divisiveness in the workplace, according to a RedBalloon report. Both workers and employers have high expectations, yet there are few training and development opportunities to help close the gap, the report found.

Career development opportunities can highly influence both employee engagement and retention — and more employers are taking notice, according to a report from Gallagher.

In a survey, about 43% of employers said they support career development to improve engagement, and 35% said they increased the importance of career well-being in 2024.

“Hiring and retaining talent is one thing, but driving better organizational outcomes requires effective engagement solutions,” William Ziebell, CEO of Gallagher’s benefits and HR consulting division, said in a statement. “If employees are given more opportunities to develop and advance their knowledge and skills from their employer, they’re more likely to gain a sense of purpose in their work, leading to increased motivation, engagement and buy-in.”

In a survey of 3,500 U.S. organizations across 22 industries, 57% said they have a formal strategy for improving employee engagement, marking an increase of 9 points since 2022. Career development, growth and mobility continue to top the list of key drivers of engagement and retention, they said.

Although 43% said they support their workers in developing and pursuing a career path, only 19% said they strive to offer interesting and challenging work, according to the survey. To boost engagement, companies can consider ways to challenge their employees with new goals, increased responsibility and promotions, Gallagher said.

Other reports have similarly indicated the importance of development, especially regarding employee engagement. For example, businesses may need to invest in employee development and adopt cross-functional career pathways to adapt to a “post-industrial economy,” according to a report from The Josh Bersin Co, a human capital advisory firm. A focus on reskilling and retaining workers will ultimately fuel productivity and growth, the firm said.

Unfortunately, most leaders tend to overestimate employee engagement and believe their workers are more loyal than they actually are, according to a report from Right Management, a talent brand under ManpowerGroup. However, investing in employee development can improve engagement and retention, particularly among mid-career and middle-layer workers who feel less engaged and need additional support from leaders right now, the report found.