What Is a Good Annual Raise Percentage?

The quality of a salary is in the eye of the receiver, whether that’s how much you’re entitled to or when you should ask for more. But there are ways to set yourself up for success when it’s time for your annual review.

If you’ve built up the courage to ask your boss for a raise, what should you do next? And what exactly counts as a good raise? Keep reading to find out more about salary increases, what the average percentage for a raise is, and what factors affect compensation.

Key Takeaways

• Make sure you’re prepared if you’re going to ask your boss for a raise.
• Pay increases tend to vary based on inflation, location, sector, and job performance.
• Most employers give their employees an increase of around 3% per year.
• Consistent job switching may have an impact on the rate at which your salary increases.
• Your paycheck shouldn’t be the only thing on your radar, so don’t forget to consider benefits and other forms of compensation.

Average Pay Increases

A number of factors have conspired to push pay increases higher in the past couple of years, but that may be changing again. According to Willis Towers Watson (WTW), which provides services related to employee benefits among other things, tight labor markets, inflationary pressures, and employee retention concerns have recently driven salary increases to levels not seen in nearly two decades.

WTW’s December 2023 Salary Budget Planning Report found that the median pay raise that nearly half of the U.S. companies it surveyed were planning to give to their employees in 2024 was 4.1%— a drop from 2023, when median raises were 4.5%. However, PayScale found that companies were predicting increases in 2024 that matched those of 2023—4.5%—and for some industries, the increases could be as high as 6%. All of these figures are above the median raises for 2021 and 2020, which were 3.1% and 3.0%, respectively, according to WTW.

In its 2024 report, WTW predicts a cooling of median raises to 3.8% in 2025 as employers tighten their belts amid concerns over the cost of supplies and fears of a recession. Mercer, the human resources consulting firm, found that average actual raises were 3.6% in 2024 and are projected to be the same in 2025.

If a traditional raise isn’t possible for your employer, consider proposing an increase to your paid vacation, paid healthcare, child care subsidies, measurable performance bonuses, retirement benefits, and other forms of compensation.

Factors That Affect Raise Percentages

Pandemics and special circumstances aren’t the only factors that can hurt your chances of getting a raise. Here are a few other factors that often prevent companies from increasing their employees’ salaries.

Inflation

Inflation is one of the biggest factors that affect people’s compensation. Put simply, this is the increase in prices within the economy as a whole. Although it seems negative, low but constant inflation is a normal part of how the economy functions. But it can be detrimental to people when it rises too fast.

Consider the situation in December 2021, when the Consumer Price Index (CPI), which measures overall cost increases in the economy, rose 0.5% from the previous month and 7% from December 2020. When you remove food and energy prices, the index rose 0.6% from the previous month and 5.5% from the previous year.

When prices increase on this kind of scale, one dollar doesn’t go nearly as far. People generally expect to get paid more in order to keep up with rising prices. They may even need a pay raise to make ends meet. However, that may not always happen, as corporations determine salaries with a variety of factors. Employers want to maintain or increase levels of profitability, and thus avoid committing to yearly inflation-based pay increases that could prove a costly expectation to fulfill in the long run from their perspective.

However, it’s not uncommon for employers to give salary adjustments for rises in the cost of living.

Wages are often determined by the state of the labor market as a whole and the market for the specific position and industry. It is often said that wages are sticky and not the quickest facet of the economy to respond to inflation. As a result, workers’ real income and purchasing power typically decline in times of inflation.

Note

The length of time you’ve been at your job can impact your ability to get a raise. Most employers give their employees a raise after the first year and each year thereafter.

Location

You probably know the saying “location, location, location.” That doesn’t just apply to where you should set your real estate goals. It also has a bearing on your starting compensation, as well as how much your salary bumps up.

According to the U.S. Bureau of Labor Statistics (BLS), wage and salary rates decreased from 4.5% in September 2023 to 3.8% in September 2024. However, that category increased at a pace of 4.8% in Los Angeles and by 5.4% during that period in San Jose.

But what if we leave California altogether? Here are changes in salaries and wages for the same period in the following municipalities:

• Chicago: 3.1%
• Detroit: 4.3%
• Seattle: 4.7%

Job Sector

The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. The BLS regularly updates employment costs for civilian workers, private industry, and government workers at the state and local levels. These costs include overall compensation, wages and salaries, and benefits.

For the 12-month period from September 2023 to September 2024, the BLS reported salary and wage costs increased:

• 3.9% for civilian workers
• 3.8% for private industry workers
• 4.7% for state and local government workers

Job Performance: Merit Increases

How you’re compensated depends on how well you execute your job duties and responsibilities. So, if you meet or exceed your goals, you may be entitled to a raise. Incremental salary increases, which are commonly done on an annual basis, incentivize employees to work hard(er) and stay with their employers. Pay raises that are based on your job performance are called merit increases.

What is a good merit increase? Nationally, merit pay increases averaged nearly 3.3% in 2024, according to Mercer, which makes a distinction between overall pay increases (3.6% in 2024) and merit increases.

If you want to ensure that you’re in the running for a merit increase, ask your current or prospective employer and read up about your compensation package in your employee handbook or employment contract. When it comes time to ask for a raise, your employer may want you to back up your argument. You can do this by documenting all your achievements and keeping track of how competing companies are compensating workers in the same position.

Important

People who depend on bonuses as part of their compensation package may not be able to keep pace with inflation unless the bonuses are large.

Other Forms of Compensation

When sizing up your wage, bear in mind that an uptick in base pay isn’t the only way that companies reward their employees. In some cases, you may actually fare better with a generous bonus instead of a big raise.

Consider someone with an annual salary of $80,000 and a modest 1% salary increase. That means their base pay only increases by $800, which probably isn’t enough to keep up with inflation. However, if that employee also takes home a $4,000 bonus, their total compensation jumps 6% (1% base pay increase plus 5% bonus). Based on nationwide figures, this reward would have been better than what most top-performing employees would receive.

Keep in mind that a significant number of companies are now emphasizing nonfinancial rewards such as career development programs. While these opportunities may not increase your bank account in the short run, they can be important ways to maximize your future earning potential.

When to Ask for a Raise

The best time to normally ask for a raise is during your performance review. Most companies hold meetings with their employees to discuss their performance at the end of the year, so that’s always a good time to see whether you’re able to negotiate a raise. But if you feel that you’ve made some stellar moves in your position, you may be in a position to ask for an increase before or after your review.

It’s always a good idea to wait at least six months from starting a job before you start asking for pay increases. This minimum time frame allows you to establish a track record in your position and demonstrate the skills and qualities you bring to your job to your employer. But remember, you’re more likely to get a raise after you have been with a company for at least a year.

Note

If you receive a competitive offer from another job, let your current employer know that you are considering leaving. If they want to keep you, they may be willing to match the other offer, which can still save them money over hiring and training a new employee.

How to Ask for a Raise

Just because you ask for a raise doesn’t mean your employer will give you one. You need to be able to demonstrate why you have earned one. To make your case convincingly, spend some time preparing before you sit down and ask your manager for a raise.

Do Your Research

Look for concrete numbers to show how much you could be earning at another job. You might also want to talk to your co-workers and see how your salary compares with theirs. This will also allow you to address any pay gap between your salary and co-workers who do a similar job.

Show Your Worth

What have you accomplished for the company in the last six months? The last year? Since you started working there? Be ready to describe not just your accomplishments at work, but how they have benefited your employer’s mission, clients, and bottom line. If you can, present your case with concrete numbers, such as new clients brought on board, increased employee retention, or specific sales revenue. Having hard data will make it harder for a manager to say you haven’t earned a raise.

Asking for a raise shouldn’t feel confrontational. You aren’t arguing against your employer. Your goal should be to show them the value that you add to the company and then be reasonably compensated for that value.

Have a Plan for the Future

You may want a raise so you can pay your rent or add more to your kid’s college fund. But your employer wants to know how they are going to benefit. Show them that you’ll continue to add value by having a clear plan for what you want to tackle in the coming year.

Present clear goals that build on your past accomplishments. Let your manager know what you have planned and how it will benefit the company. Show them you are genuinely dedicated to your work and invested in bringing value to your employer.

Put Things in Writing

Your direct manager may not be the person who can sign off on giving you a raise. Chances are, they have to take any requests for pay increases to their boss. No matter how much they want to give you one, they won’t be able to unless that boss says yes.

Put your request in writing and bring it with you to the meeting. Include concrete information, such as your current salary and how it compares with others in your field. List hard data that demonstrate your accomplishments. Outline your goals for the future and how they will benefit your company.

You’ll help your manager to make a stronger case if you can provide them with everything that you used to make your case to them.

The Effect of Job Switching

Maximizing your earnings over a long time usually means changing jobs rather than staying in place. Even if it’s not quite as common as it once was, it’s still very normal and possible to achieve a pay increase of 10% to 20%, if not higher, when changing jobs. Switching jobs is still the most common path to the best pay raise.

If you stay at the same organization, your annual increases may be restricted by your current base pay because companies have a narrow percentage range within which they can boost your pay. But if you negotiate with a different firm, you won’t be bound by those restrictions. The key is to prove that you’re worth the salary you want.

How Much of a Raise Should I Ask for?

How much you ask for depends on how long you’ve been with your employer and your role with the company. It’s always a good idea to ask for anywhere from 10% to 20% higher than what you’re making right now. You may be able to ask for more based on your performance, length of time with the company, and other factors. Make sure you come prepared when you negotiate your raise and be confident. If your employer rejects your request, you can always lower your target.

Is Asking for a 10% Raise Too High?

A 10% raise is well above average, but it might not be unreasonable. Depending on how long you’ve been with the company and when you last received a raise, you might be entitled to far more compensation than you’re currently receiving. If you plan to ask for a large raise, you’ll need to have plenty of data to back up your request, including concrete numbers that show the value you’ve added to the company.

Can I Be Fired for Asking for a Raise?

It isn’t illegal to fire employees because they asked for a raise, but it would reflect poorly on the employer that did it. Especially given the existence of websites that allow employees to share information about employers, it is a risk that most companies wouldn’t want to take. If you are worried about asking for a raise, talk to your co-workers and ask about their experiences with requesting or receiving a salary increase from your employer.

The Bottom Line

An annual pay increase of 3% may not sound substantial, especially when compared with inflation and the rising costs of necessary goods and services, such as healthcare. But in today’s environment, it’s better than anything. Over time, relatively small raises will compound and may very well result in a very nice salary. And if you feel like you’re not being paid as much as you deserve at your current job, that may be a sign that it’s time to look for a new one.