For the 17th consecutive year, Payscale’s Compensation Best Practices Report (CBPR) tracked how HR practitioners (and others) view compensation. This year, market uncertainty and its budgetary squeeze have dominated conversations.
The numbers prove the narrative. 51% of organizations face the same “top challenge”: employees want more than budgets allow. Compensation professionals and HR are caught in the middle. Employees call for higher wages, while the market demands discipline.
HR faces higher expectations. Connect pay to your talent strategy. Prove ROI. Figure out what jobs can be done by AI. And do it on a leaner budget.
As Payscale’s Chief Compensation Strategist, Ruth Thomas puts it: “Compensation in 2026 is being reshaped by shrinking budgets, a cooling labor market, and the accelerating influence of AI.”
That’s why we’re calling 2026, “The Year of Strategic Alignment.” Compensation is moving away from a strictly HR function to an executive-level priority, with pay rooted in measurable outcomes.
While this creates sharper differences in how organizations approach compensation, the winners will treat it as a strategic asset in business decisions.
Let’s look at some of the ripe findings from CBPR.
AI skills are desired, but employers don’t want to pay for them yet
News headlines trumpet AI skills as a panacea for employee marketability. We even reported third-party research showing AI skills commanded hefty pay premiums.
We were premature.
CBPR data shows 55% of companies offer no pay premiums for AI skills. This includes bonuses, equity, and other types of compensation. Only 14% offer higher base pay for AI skills, 10% in bonuses, while another 9% offer long-term incentives (LTI).
Meanwhile, companies are rewriting roles for AI. This is true for 31% of IT jobs, 20% of non-IT jobs, and 10% of leadership positions. Nearly 42% of organizations also added AI-specific roles this year.
The scariest stat: 30% of organizations say they’re replacing roles with AI or seriously considering it.
Will AI proficiency become an expected skill without additional compensation? Are employers really ready to replace roles with artificial intelligence? We’re still early in AI adoption, but CBPR indicates both could be true.
For now, AI skills are valued, but data shows most employers aren’t paying more for them.
Sluggish hiring is causing employee anxiety and pay frustration
The 2025 labor market was worse than we thought. Downward revisions in January 2026 brought the total tally of jobs created in 2025 to 181,000. The worst year for job growth (outside of recessions) since 2003.
Employees are noticeably on edge, fueling anxiety and perceptions of pay inequality. Forty percent of organizations also say salary misinformation is driving pay misperceptions in the workplace.
Organizations will lean into pay transparency to counter misinformation and the inequality story. 49% are targeting organization-wide or public pay transparency in 2026, a sharp uptick from 33% last year.
Meanwhile, hiring was indeed slow in 2025. Only 43% of organizations report actively hiring in 2025, and voluntary turnover reached a low of 8%. This confirms the “job hugging” narrative that commanded media attention throughout the year.
With a frustrated workforce stuck in jobs they’d otherwise leave, HR is caught between Scylla and Charybdis. Risk alienating their workforce even more or stay the course with lower pay reflecting a cooling labor market and macro uncertainty.
Five percent of companies lowered pay for current employees, while 11% decreased salary offers and another 16% reduced pay increases, according to CBPR.
One interesting phenomenon we saw this year: peanut butter pay increases.
While most organizations have maintained performance-based pay, 44% are considering spreading increases evenly across their workforce. It’s administratively simpler and counters the effects of inflation, making it especially popular for orgs with a lot of low-wage workers.
Compensation decisions enter the boardroom
In 2026, 61% of organizations have a compensation strategy. According to Payscale’s Compensation Maturity Model, compensation maturity has also grown by 12%. Organizations are getting smarter and more sophisticated in their pay practices.
It couldn’t come at a more opportune time. Leadership involvement in compensation decisions is high, according to CBPR.
- 68% of executives view compensation as a strategic lever
- 75% say executives ask for compensation reporting either frequently or occasionally
- 63% of executives believe pay decisions drive positive business outcomes
And they aren’t wrong. As confidence in pay decisions grows (the right market pricing, pay increases, and total rewards), outcomes approve. Regrettable turnover drops. Time-to-fill contracts. Positive employee sentiment increases.
Ushering in the compensation intelligence era
Compensation is coming of age. Data, technology, and strategy will converge, shaping how organizations think about pay as a lever for growth.
As Payscale’s Chief People Officer Lexi Clarke explains: “When leaders have confidence in pay practices, they can champion decisions that drive performance, strengthen culture, and create a lasting competitive advantage. The organizations that are successful will turn compensation intelligence into meaningful business impact.”
The old approach of annual salary data and spreadsheet comp won’t survive the demands of the modern market. Your executives expect greater ROI for every comp dollar. Employees want pay transparency. Meanwhile, budgets are tighter and the labor market unpredictable.
Compensation intelligence is the answer: on-demand access to trusted data, AI-powered insights that scale, and tools that elevate human judgement.
Organizations that treat compensation as a strategic asset will pull ahead. Those that don’t will keep fighting the same losing battles: misaligned budgets and misinformed employees.
2026 is the year to align compensation with business outcomes. Is your compensation strategy ready?
Payscale’s Compensation Best Practices Report surveyed 3,413 organizations between October and December 2025. It’s the largest known report on compensation best practices.
Download the full 100-page report to see:
- How a cooling labor market is reshaping pay decisions
- Whether AI skills are actually commanding higher pay
- How to prepare for the road ahead
- What compensation leaders are doing differently with compensation planning, benchmarking, pay equity, transparency, and total rewards
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