Salary hikes in 2025: Will appraisals meet employee expectations or drive job switches?

The appraisal season is a crucial time for employees, filled with both anticipation and anxiety. “You put in a year’s worth of effort, sometimes more, but when the hike finally arrives, it’s often disappointing,” says Raveena Bhati, a UX designer based in Bengaluru. “If the raise doesn’t match the effort, you start wondering if it’s time to move on.”

For employees across industries, salary hikes, promotions, and career development opportunities remain central to employee expectations. However, in a dynamic business environment marked by economic fluctuations and evolving work preferences, the big question remains: Will the salary increments of 2025 align with what employees are hoping for?

According to industry experts, Indian companies are expected to maintain a modest salary hike of 7-10% in 2025, with variations across industries and work levels. “This will be a modest increase and may not delight everyone,” says Prabir Jha, founder & CEO of Prabir Jha People Advisory and former HR head at Tata Motors, Reliance, and Cipla. However, he believes this level of increment remains healthy given economic fluctuations. At the same time, he warns that the gap between C-suite and junior-level salaries is likely to widen, with performance-based pay playing an increasingly crucial role.

“I remember getting a 7% hike at my previous company, and when I approached my manager about it, he simply said, ‘We don’t know what you have done in the past year.’ That was a low blow,” shares Bhati, who later switched jobs for better opportunities.

Viswanath PS, MD & CEO of Randstad India, points to the consistency in salary hikes. “India Inc. is set to offer an average salary increase of around 9.5% in 2025, mirroring the actual increase observed in 2024. This suggests that organisations are maintaining a steady approach, neither significantly expanding nor contracting their increment budgets.” However, he acknowledges that employee expectations may vary, especially in high-demand sectors. “Certain sections of the talent community might anticipate higher raises, leading to a perception of a widening gap between employer offerings and expectations,” he adds.

Beyond Salary: What Employees Really Want

Interestingly, compensation is no longer the sole determinant of job satisfaction. “While salary hikes remain a top priority, professionals also seek structured career progression and skill development opportunities to stay competitive in a rapidly evolving job market,” says Sunil Chemankotil, CEO of Adecco India. The Adecco India Salary Guide 2025 found that while 71% of professionals prioritise compensation, a significant number also emphasise career growth and skill enhancement.

Randstad’s Work Monitor 2025 survey reinforces this shift, with Viswanath saying, “67% of talent have said they would consider leaving a job if it does not offer sufficient opportunities for skill development.” This highlights the growing importance of learning and upskilling in career decision-making. Additionally, work-life balance, mental health support, and a positive workplace culture have become critical factors influencing retention.

Chemankotil notes that beyond financial incentives, employees increasingly value intangible aspects of work, such as recognition, workplace flexibility, and strong leadership. Many professionals today expect companies to invest in their personal and professional well-being through wellness programmes, mentorship opportunities, and mental health support.

Moreover, organisations that actively support continuous learning and career mobility stand a better chance of retaining top talent. “With expertise in AI, cybersecurity, and cloud computing becoming increasingly valuable, upskilling has become a key career consideration,” says Chemankotil.

“Talent management cannot remain a socialistic exercise in a hyper-competitive business environment. It will make your better performers less incentivised, making them more vulnerable to external possibilities,” warns Jha.

A generational shift in the workforce is also reshaping expectations. Millennials and Gen Z employees place greater emphasis on purpose-driven work, leadership transparency, and meaningful career paths. Unlike previous generations, who may have prioritised job security and steady pay increases, younger professionals are willing to explore new roles if they feel their career is stagnating. As Chemankotil puts it, “Millennials and Gen Z professionals expect career growth within 2-3 years and are more likely to leave if they don’t see clear advancement.”

Viswanath adds that organisations that fail to address these evolving priorities risk losing top talent. “Companies prioritising work-life balance, mental well-being, and career development pathways will have a competitive edge in retaining and attracting talent in this dynamic job market,” he says.

Impact of Below-Expectation Appraisals

Despite stable salary hike projections, a disconnect between expectations and actual increments can impact employee morale and attrition. “When talent receives appraisals that fall short of their expectations, the impact on morale can be significant. They might feel undervalued or overlooked when their contributions aren't reflected in their performance reviews,” says Viswanath.

“Our findings indicate that 68% of employees across sectors would consider looking for a new job if their appraisal outcomes are unsatisfactory,” shares Aditya Narayan Mishra, MD & CEO of CIEL HR. Even those who stay may experience reduced motivation, leading to decreased productivity and engagement, further affecting overall organisational performance and retention rates.

“After my last appraisal, I felt devalued. The hike was lower than expected, almost non-existent. It immediately made me want to explore new roles and move to a company that offered better recognition and a stronger compensation structure,” shares Advitya Sodha, a Gen Z product designer based in Gurugram.

Furthermore, high-demand industries such as AI, technology, and financial services are more prone to attrition when employees feel undercompensated. Chemankotil points out that 42% of professionals in India are actively seeking new opportunities, reinforcing how unmet appraisal expectations drive job-switching.

Are Employees More Likely to Switch Jobs in 2025?

Industry experts agree that salary hikes alone do not determine whether an employee stays or leaves. “Competitive salary hikes remain a major incentive, but career stagnation and limited learning opportunities are also significant drivers of job changes,” says Chemankotil.

Jha sees some level of attrition as a natural occurrence. “Some exits will always happen. As long as your better performers do not leave, it is okay and an opportunity to raise the overall talent quotient by better hires or elevations,” he explains. However, he says that companies operating in sectors with in-demand skills may need to loosen their purse strings to retain talent.

Viswanath highlights another critical trend: “Entry-level employees are more sensitive to low increments and are more likely to switch jobs, whereas mid-level and senior professionals often stay despite modest appraisals due to stability, long-term career growth, and internal opportunities.”

With companies balancing financial prudence and employee expectations, variable pay and performance-linked incentives are set to play a more significant role in 2025. “We see a clear evolution in how companies are structuring their variable pay and performance-linked incentives, with a growing emphasis on aligning rewards directly to measurable outcomes,” says Viswanath. He adds that while fixed pay remains the foundation, firms are integrating more performance-based components into total compensation packages.

“For instance, even though the overall target for variable pay at the top remains around 30%, we are witnessing a noticeable uptick in performance-linked incentives, signalling a deliberate move to reward leadership that drives strategic results,” Viswanath explains. He adds that digital performance management systems are making these incentives more data-driven, ensuring that rewards are timely and based on real contributions.

Jha echoes this sentiment, saying, “I hope to see a more conscious adoption and acceptance of a performance-linked rewards philosophy. There can be no free lunch in a competitive business environment.”

Navigating Appraisals More Effectively

For employees seeking better increments and promotions, experts recommend a strategic approach. “Employees should come with an open mind to receive feedback, explore ways to create a bigger impact by making changes to their approach and attitude, and improve their skills and capabilities,” advises Mishra.

He suggests quantifying contributions as a key tactic. “Be prepared with concrete data on how your work has impacted the company’s bottom line, and quantify your achievements,” he says.

The Balancing Act

As companies prepare for the 2025 appraisal cycle, they face the challenge of managing employee expectations while maintaining financial sustainability. Experts emphasise the need for transparent communication and structured career development pathways.

Salary hikes in 2025 may not dramatically surpass previous years, but with evolving employee priorities, companies must rethink their overall compensation approach.