Payscale’s 2025 Compensation Best Practices Report (CBPR) arrives with a bang this year. More than 3,500 comp professionals, HR leaders, and business owners shared how their organizations will approach everything from pay increases to pay equity.
We strongly encourage you to read the report, but here’s a sneak peek at some of our most striking discoveries and forecasts.
Resignations may rise as the economy finds its footing
The U.S. job market has experienced whiplash over the past four years. From the Great Resignation in 2022 when voluntary turnover reached a staggering 26 percent to the Great Stay with resignations dropping to 13 percent in 2024, the market has undergone a significant transformation.
Yet the recession that many predicted never appeared. Instead, we find ourselves in a sluggish labor market with slowdowns in both hiring and resignations. While some sectors have been hit with layoffs, with knowledge workers bearing the brunt, unemployment stands at 4 percent (near historic lows) and the market has been surprisingly resilient.
As recessionary fears dissipate, and the Fed embarks on cutting interest rates, we see hints of market movement on the horizon. Ultimately, whether voluntary turnover begins accelerating depends on economic conditions. Business optimism resulting in new job openings will be influenced by how quickly the Fed cuts rates, which depends on where the new administration lands on tariffs and whether inflation can finally be tamed.
Pay tensions grow between employers and employees
As power shifted from employees to employers over the past year, conflict around pay has also increased. With uncertain economic conditions, the drumbeat for organizations to reduce costs has become louder.
Although most organizations have not introduced cost-cutting strategies, 18 percent report reducing pay increases, while another 15 percent say they are hiring less experienced talent. These cost reduction strategies might be having downstream effects on employee pay satisfaction.
As pay transparency laws are enacted in more states and municipalities, workers have gained a better sense of the market worth of their roles. Organizations’ desire to keep compensation budgets in check is confronting employees seeking fairer pay, ratcheting up tensions.
Predictably, this tension is amplified for organizations that didn’t achieve their business goals last year, rising to 58 percent. While overall business performance improved from 2023 to 2024, 14 percent of organizations didn’t meet revenue goals, potentially driving them to look for savings by reducing compensation spend.
Remote work opportunities retreat
As employers gained ground in 2024, they began pressing harder on return-to-office (RTO) mandates. Brand-name organizations make headlines when they announce RTO mandates, but our data shows that most organizations are taking roles into account in implementing these policies.
As remote work shrinks, hybrid and traditional workplace environments haven’t expanded. Instead, most orgs are splitting up workplace environments based on the type of job employees perform.
To better understand remote work trends, we also asked organizations to describe their workplace environments for knowledge workers. Recognizing that some jobs require in-person attendance (e.g. frontline workers in retail and manufacturing) gives us a better sense of whether remote work is actually decreasing.
For work that can be done from anywhere, hybrid workplace arrangements dominated at 55 percent, followed by traditional office environments (29 percent) and fully remote work (17 percent).
While down considerably from its post-pandemic heights, remote work is still the most popular choice among employees. Whether remote work contracts further will likely depend on the market. If it tightens again, employees will be positioned to seek out jobs that offer work-from-home (WFH) benefits. On the other hand, labor market stagnation would favor employers who desire workers return to the office.
Pay equity initiatives show modest declines
In the wake of the Black Lives Matter Protests and the Great Resignation, corporate boardrooms across the country quickly moved to address pay equity. The progress has been remarkable. In 2019, 38 percent of organizations either had or planned to introduce a pay equity initiative. By 2022, 66 percent of organizations reported the same.
While the percentage of organizations planning or having a pay equity initiative has declined slightly since its peak in 2022, it is still a focal point for a majority of organizations.
Achieving pay equity is a cornerstone of diversity, equity, and inclusion (DEI), ensuring employees are compensated fairly regardless of demographic characteristics. With recent criticisms of DEI surfacing in public and political discourse, organizations’ commitment to pay equity may waver.
Our findings show that 66 percent of organizations feel that DEI should remain a central tenet of their organizations’ practices, while 18 percent do not, and 16 percent are unsure.
Last summer, the Society of Human Resource Management (SHRM) revealed that it would be removing equity from DEI, grouping it under inclusion. This set off a fierce debate in the HR community, which is likely to continue. Those who wish to downplay DEI point to shifting public sentiment. They argue that equity is a legal protection supported by a raft of laws, including the Equal Pay Act, Title VII, and the Lilly Ledbetter Fair Pay Act.
2025 will be the Year of Contention with compensation taking center stage
While 2024 was the Year of Retention, with a notable decline in employee resignations and turnover, 2025 is poised to be the Year of Contention. Growing wealth inequalities and pay dissatisfaction, especially among talent top, will cause workers to seek better opportunities.
Economists predict three rate cuts before the end of 2025, which will open the door for businesses to increase hiring. The pent-up frustrations of workers who feel stuck in their current roles will gradually give way to a market more favorable to employees.
According to our report, 61 percent of organizations report having a formal compensation strategy and philosophy. While we changed the question slightly this year to avoid confusion over the difference between a compensation strategy and philosophy, we still see significant growth in organizations having a formal compensation strategy year over year.
While this represents a majority of organizations, the number should be even higher.
Our report also shows a rise in the number of organizations training managers on how to have pay conversations with employees. For years, the number of companies training managers on this essential skill seemed stuck at 50 percent, although it grew to 59 percent in 2024.
We might view this as the culmination of the pay transparency journey many organizations have undertaken over the past several years — with pay communications as the final step in achieving compensation maturity.
For the 39 percent of organizations without a formal compensation strategy and the 41 percent who aren’t training managers on pay communications, these will be more necessary in 2025. Employees feel secure in their jobs but are increasingly dissatisfied with their pay.
Poor pay perceptions lead to decreased engagement and higher attrition rates, both of which have an adverse impact on productivity and organizations’ achieving their business goals.
If, as we foresee, market conditions increase employee job mobility in 2025, organizations will need compensation management systems to retain top talent and keep their workforce engaged.
To view our complete 2025 Compensation Best Practices Report, click below.
