2026 Compensation Best Practices Report

State of the labor market

At the end of 2024, the economy improved and the Federal Reserve announced that a recession had been avoided. The U.S. economy was on the upswing. However, in 2025, economic growth stymied and job gains plummeted in the second half of the year.

U.S. Monthly Job Gains — 2024
Month	Jobs Added
Jan	119,000
Feb	222,000
Mar	246,000
Apr	118,000
May	193,000
Jun	87,000
Jul	88,000
Aug	71,000
Sep	240,000
Oct	44,000
Nov	261,000
Dec	323,000

U.S. Monthly Job Gains — 2025
Month	Jobs Added
Jan	111,000
Feb	102,000
Mar	120,000
Apr	158,000
May	19,000
Jun	-13,000
Jul	72,000
Aug	-26,000
Sep	108,000
Oct	-173,000
Nov	56,000
Dec	50,000

According to Payscale’s Compensation Best Practices Report, business performance also declined slightly in 2025, with 24% of organizations saying they would exceed revenue goals compared to the previous year (-1% YOY).

Will your company meet its overall revenue goals for 2025?
	Overall
We do not have revenue goals (educational institution, nonprofit, etc.)	7%
We will exceed revenue goals	24%
We will meet revenue goals	40%
We will not meet revenue goals	14%
Other	1%
Unsure	14%

According to the Compensation Best Practices Report, total turnover was 12% and voluntary turnover was 8%, which is historically low. Hiring was also relatively low, as evidenced by job gains, with only 43% of organizations saying they hired actively across departments.

Which of the following statements applied to your organization's workforce in 2025? (Multiple answer choices allowed)
	Overall
We actively hired across most departments	43%
We hired selectively for critical or high-priority roles only	34%
We conducted layoffs or workforce reductions	28%
Our hiring and turnover remained stable throughout the year	24%
We experienced longer time-to-fill for open positions	21%
We implemented a hiring pause or freeze at some point during 2025	19%
We struggled to attract candidates with in-demand or emerging skills	19%
We saw higher-than-normal voluntary turnover	10%
None of the above	7%
We changed our hiring-location strategy (e.g., shifting roles to lower cost locations)	7%
We offshored hiring to lower cost talent markets	6%
We re-shored roles that were previously offshore	3%
Other	2%

Despite a labor market that favors employers, most organizations are not taking advantage by lowering pay, with the most common reaction being to reduce pay increases (16% of organizations). However, employees believe pay to be unfair. When it comes to unfair pay perceptions, 40% of organizations cite misinformation or disinformation from unverified data sources.

In response to economic or labor market conditions, is there a strategy at your organization to decrease spend through any of the following? (Multiple answer choices allowed)
	Overall
None of the above	43%
Reducing pay increases	16%
Hiring less experienced talent	12%
Unsure	12%
Reducing salary offers to new hires	11%
Targeting a lower percentile	11%
Reducing benefits	10%
Slotting jobs at lower levels	8%
Canceling pay increases	6%
Lowering pay for current employees	5%
Other	4%

Spotlight on artificial intelligence

According to Payscale’s Compensation Best Practices Report, 30% of organizations say they are replacing workers with AI or planning to in the future. In addition, 61% of organizations have updated existing roles to include AI-related skills or competencies, but 55% have yet to do anything to adjust compensation for AI skills.

Artificial Intelligence involvement to organizations stats

Artificial intelligence is also reshaping compensation management by enabling faster, more data-driven and scalable pay decisions. However, according to the Compensation Best Practices Report, 57% of organizations cite transparency and accuracy of outputs as essential in earning trust, with 21% of organizations trusting only compensation-specific AI tools that have methodologies and controls.

What factors most influence your trust in an AI tool for compensation-related tasks (Top three choices ranked)
	Total Pct Ranked
Transparency in how the AI generates results (e.g., methodology, peer data sources)	57%
Accuracy of outputs compared to internal or known benchmarks	57%
Number and robustness of data sources	34%
Security, privacy, and compliance with compensation regulations	34%
Human review or override options	33%
Ability to audit or explain decisions made by the AI	29%
Vendor reputation and domain expertise	18%
I do not trust AI tools for compensation tasks	14%
Prior positive experience with the tool	12%
Peer or industry adoption	11%

Compensation preparedness and maturity

In 2026, compensation management is being reshaped by multiple forces converging simultaneously:

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A cooling labor market
Shrinking budgets
The accelerating impact of AI
A concerted push to center outcomes

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As payroll is a significant expense for most organizations, there is an increasing need for compensation intelligence that can deliver insights on-demand and at scale so that pay decisions are competitive and defensible.

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In the 2026 Compensation Best Practices Report, we find that 51% of organizations cite balancing pay expectations with financial limits as their top challenge. Fortunately, 61% of organizations say they have a compensation strategy and 68% say their executive leaders view compensation as a strategic business success.

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In addition, 63% of organizations believe their compensation policies drive positive outcomes and 75% of organizations say their executive leadership team requests compensation reporting either occasionally or frequently.

Statistics of organizations with compensation maturity

We also found that compensation maturity grew 12% in 2026 according to Payscale’s Compensation Maturity Model. As was true last year, compensation maturity is associated with purpose-built compensation management point solutions like Payscale.

Which of the following best describes your organization's current compensation management maturity level?

Stage	Description	2025	2026
As needed	We mainly worry about compensation at time of hire, haven't begun standardized compensation processes, and rely primarily on free data sources.	17%	12%
Emerging	We have begun developing a few key compensation processes and consistent approaches when using salary data for market pricing.	20%	16%
Developing	We have standardized our approach to accessing and managing salary data and are working on creating a compensation strategy and processes with supportive tools/technology around compensation planning and management.	30%	27%
Advancing	We have a reliable, standardized approach to managing salary data sources that is strategically tailored to our organization, a strong compensation strategy, and processes and tools that help us manage pay.	23%	31%
Optimizing	We are confident in our data sources, compensation strategy, and structures and are in position to continuously optimize our approach and be the standard for compensation best practices.	10%	14%

45% (+12% YOY) advancing or optimizing

56% for Payscale customers

Pay transparency and pay equity

Pay transparency legislation continues to expand worldwide and 2026 is the year that the EU Pay Transparency Directive takes effect, making this an especially critical year for pay transparency and pay equity.

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According to Payscale’s Compensation Best Practices Report, 57% of organizations say they post salary ranges in job ads, 42% do it across all jobs regardless of location or requirements, but only 23% are fully prepared for the EU Pay Transparency Directive.

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Our report also finds that 60% of organizations say that pay equity analysis is a current or planned initiative, a 3% increase YOY. For the minority that did not, only 10% cited de-prioritization of DEI as a reason.

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Even more exciting, we see that almost half of organizations (49%) are targeting pay transparency either across the organization or publicly in 2026, which is a 16% jump from last year when it was only a third of organizations.

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Pay Transparency Level	Current	Target
None	23%	5%
Required	33%	19%
Individual	20%	27%
Organization	16%	32%
Public	7%	17%

Salary data and market pricing

Validated, HR-trusted market data is essential to modern compensation management. According to Payscale’s Compensation Best Practices Report, the average number of salary data sources used by organizations for market pricing is 3.

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When it comes to characteristics that make salary data trustworthy, 71% of organizations ranked industry as most important for assessing quality.

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While traditional salary surveys continue to be popular and are on the rise as more organizations invest in compensation best practices, industry networks with native survey-quality data like Payscale Peer are also seeing an uplift in usage.

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According to our survey, 65% of organizations are confident in their market pricing strategy, which increases to 72% for Payscale customers.

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Which sources do you use to obtain market data?
	2023	2024	2025	2026
Salary survey from traditional publishers	47%	49%	52%	60%
Closed network HR reported salary (e.g., PayScale Peer)	21%	25%	27%	31%

Pay increases and pay-for-performance

As we already reported with our Salary Increase Preview Report, released in January, 48% of organizations are giving merit increases in 2026, but 44% are giving or considering peanut butter pay increases, which is when all employees receive the same pay increase regardless of performance. The average pay increase being given is 3.5%.

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According to the 2026 Compensation Best Practices Report, we also find that only 75% of organizations are committed to giving pay increases at all and 18% have no processes in place to reward pay-for-performance, whether through base pay increases, promotions, variable pay, or recognition.

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Despite this, 60% of organizations say they are confident that their pay increases are competitive, which increases to 70% for Payscale customers.

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How does your organization connect performance assessments (e.g., ratings) to compensation or rewards? (Multiple answer choices allowed)
Unsure / Not applicable	4%
Performance assessments are directly tied to base pay increases	57%
Performance assessments are directly tied to promotions	33%
Performance assessments are directly tied to variable pay	27%
Performance assessments are directly tied to recognition or non-monetary rewards	19%
We do not have a pay-for-performance process in place	18%
Other	3%

Pay-for-performance practices by: Company size
Practice	1–99	100–749	750–4,999	5,000–9,999	10,000–49,999	50,000+
Base pay increases	44%	61%	67%	69%	66%	65%
Promotions	26%	38%	36%	42%	29%	37%
Variable pay	25%	27%	34%	38%	27%	33%
No pay-for-performance	20%	19%	20%	24%	16%	24%
Non-monetary awards	19%	19%	14%	14%	15%	13%
Unsure	7%	16%	14%	14%	7%	5%
Other	3%	3%	3%	3%	7%	2%

Pay-for-performance practices by: Company performance
Practice	Top performing company	Non-top performing company
Base pay increases	62%	54%
Promotions	38%	28%
Variable pay	33%	25%
Non-monetary awards	28%	16%
No pay-for-performance	12%	24%
Unsure	3%	5%
Other	2%	3%

Pay-for-performance practices by: Compensation team
Practice	Yes	No
Base pay increases	64%	47%
Promotions	37%	29%
Variable pay	33%	25%
Non-monetary awards	23%	14%
No pay-for-performance	13%	29%
Unsure	2%	6%
Other	3%	5%

Pay-for-performance practices by: Industry (No P4P)
Industry	No Pay-for-Performance (%)
Government	38%
Nonprofit	33%
Education	32%
Transportation	24%
Warehousing	23%
Real Estate, Rental & Leasing	23%
Healthcare & Social Assistance	23%
Retail & Customer Service	19%
Other	19%
Business Services	17%
Arts, Entertainment & Recreation	17%
Agencies & Consultancies	17%
Food, Beverage & Hospitality	15%
Engineering & Scientific	14%
Technology (including Software)	13%
Manufacturing	13%
Energy & Utilities	13%
Construction	13%
Finance & Insurance	8%

How does your organization connect performance assessments (e.g., ratings) to compensation or rewards? (Multiple answer choices allowed)
Unsure / Not applicable	4%
Performance assessments are directly tied to base pay increases	57%
Performance assessments are directly tied to promotions	33%
Performance assessments are directly tied to variable pay	27%
Performance assessments are directly tied to recognition or non-monetary rewards	19%
We do not have a pay-for-performance process in place	18%
Other	3%

Pay-for-performance practices by: Company size
Practice	1–99	100–749	750–4,999	5,000–9,999	10,000–49,999	50,000+
Base pay increases	44%	61%	67%	69%	66%	65%
Promotions	26%	38%	36%	42%	29%	37%
Variable pay	25%	27%	34%	38%	27%	33%
No pay-for-performance	20%	19%	20%	24%	16%	24%
Non-monetary awards	19%	19%	14%	14%	15%	13%
Unsure	7%	16%	14%	14%	7%	5%
Other	3%	3%	3%	3%	7%	2%

Pay-for-performance practices by: Company performance
Practice	Top performing company	Non-top performing company
Base pay increases	62%	54%
Promotions	38%	28%
Variable pay	33%	25%
Non-monetary awards	28%	16%
No pay-for-performance	12%	24%
Unsure	3%	5%
Other	2%	3%

Pay-for-performance: Compensation team
Practice	Yes	No
Base pay increases	64%	47%
Promotions	37%	29%
Variable pay	33%	25%
Non-monetary awards	23%	14%
No pay-for-performance	13%	29%
Unsure	2%	6%
Other	3%	5%

Pay-for-performance practices by: Industry (No P4P)
Industry	No Pay-for-Performance (%)
Government	38%
Nonprofit	33%
Education	32%
Transportation	24%
Warehousing	23%
Real Estate, Rental & Leasing	23%
Healthcare & Social Assistance	23%
Retail & Customer Service	19%
Other	19%
Business Services	17%
Arts, Entertainment & Recreation	17%
Agencies & Consultancies	17%
Food, Beverage & Hospitality	15%
Engineering & Scientific	14%
Technology (including Software)	13%
Manufacturing	13%
Energy & Utilities	13%
Construction	13%
Finance & Insurance	8%

Variable pay and total rewards

According to Payscale’s 2026 Compensation Best Practices Report, 75% of organizations are giving variable pay in 2026, which is a 6% decline year-over-year and affects all types of bonuses.

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In contrast, 61% of organizations say that investment in benefits will remain the same while 16% of organizations say they will be reducing benefits and 14% say they will be expanding benefits. Mental health benefits are the top-cited newly added benefit to stay competitive for 46% of organizations.

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Overall, 64% of organizations are confident in their total rewards packages being effective at attracting and retaining talent, which increases to 72% for Payscale customers.

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What types of bonuses or incentives did your organization use to reward top performers? (Select all that apply.)
	Last year	This year
Individual annual incentive bonuses	41%	40%
Hiring bonuses	43%	35%
Year-end bonuses (e.g., holiday bonus)	37%	33%
Company performance bonuses	34%	30%
Retention bonuses	33%	29%
Spot bonuses or other discretionary bonus programs	31%	28%
Team incentive bonuses	19%	18%
Equity or long-term incentives	19%	18%
Profit sharing (excluding retirement plans such as 401k and 403b)	17%	14%
None of the above	9%	13%
Market premium bonuses	6%	5%
Other	2%	2%

Positive outcomes with pay confidence

By comparing positive outcomes such as reduced voluntary turnover and time-to-fill (open roles) with confidence in pay increases, market pricing, and total rewards, we can measure the impact of compensation best practices.

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In our survey, we asked “On a scale of 1-5, how confident are you in your current [market pricing / pay increases / total rewards packages] being effective at attracting and retaining talent?” with 1 being not confident and 5 being very confident.

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We also asked: “What was the average number of days required to fill an open position in your organization in 2025?” denoted as time-to-fill, and “What was your average voluntary employee turnover rate in 2025?” denoted as voluntary turnover.

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Overall, our analysis finds that time-to-fill and voluntary turnover decreases as confidence in pay decisions increases. In addition, confidence is higher for Payscale customers than non-Payscale customers.

We also compared employee sentiment scores to whether and how employers proactively manage pay adjustments and explain pay decisions to employees.

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In our survey, we asked “How would you rate overall employee sentiment at your organization?” with numerical answer choices 1 through 10 where 1 in unhappy and disengaged and 10 is happy and engaged. Similarly to a Net Promoter Score, we rate answer choices 1-6 as Detractors, 7-8 as Passives, and 9-10 as Advocates for the employee experience.

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When crossing this analysis with pay communications decision, our analysis shows that confident, proactive pay communications lead to happier, more engaged workers.

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The impact of effective pay practices (Confidence: Market pricing)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	54%	36%	11%
2 - Not confident	48%	39%	13%
3 - Neutral	25%	50%	25%
4 - Fairly confident	12%	60%	28%
5 - Very confident	4%	27%	69%

The impact of effective pay practices (Confidence: Pay increases)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	62%	26%	11%
2 - Not confident	46%	46%	8%
3 - Neutral	24%	57%	18%
4 - Fairly confident	12%	59%	29%
5 - Very confident	4%	26%	69%

The impact of effective pay practices (Confidence: Total rewards)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	54%	31%	15%
2 - Not confident	43%	47%	9%
3 - Neutral	28%	50%	21%
4 - Fairly confident	10%	60%	29%
5 - Very confident	4%	27%	68%

The impact of effective pay practices (Confidence: Market pricing)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	54%	36%	11%
2 - Not confident	48%	39%	13%
3 - Neutral	25%	50%	25%
4 - Fairly confident	12%	60%	28%
5 - Very confident	4%	27%	69%

The impact of effective pay practices (Confidence: Pay increases)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	62%	26%	11%
2 - Not confident	46%	46%	8%
3 - Neutral	24%	57%	18%
4 - Fairly confident	12%	59%	29%
5 - Very confident	4%	26%	69%

The impact of effective pay practices (Confidence: Total rewards)
Response	Detractors (<6)	Passives (7–8)	Advocates (9+)
1 - Not at all confident	54%	31%	15%
2 - Not confident	43%	47%	9%
3 - Neutral	28%	50%	21%
4 - Fairly confident	10%	60%	29%
5 - Very confident	4%	27%	68%

Download the 2026 Compensation Best Practices Report

Payscale’s 17th annual Compensation Best Practices Report (CBPR) distills data and insights from the largest known survey on compensation management best practices.‍Topics covered include: artificial intelligence, labor market, compensation preparedness, compensation software, compensation planning, salary data, job management, benchmarking, compensation strategy, geographic pay, pay equity, pay transparency, and total rewards.

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"This report helps me stay ahead of emerging practices, benchmark effectively, and make informed decisions that balance competitiveness with internal equity. It’s not just informative; it’s a strategic tool that elevates the entire compensation conversation.” -2026 survey participant

Methodology

The 2026 Compensation Best Practices Survey gathered 3,413 responses from October–December 2025 with a completion rate of 50%. A full breakdown of the methodology can be found at the end of the report.

Top Performers

Top-performing organizations are defined as those that exceeded their revenue goals in 2025 based on a self-selected answer choice in the survey. In this year’s study, 24% of respondents fit this criterion, which is 1% lower than last year (25%) but 3% greater than the year before (21%).

Organization Size

In our survey we asked for participants to provide a number for how many full-time employees there are in their organizations. We separated out six organizational sizes for comparison, with 34% of respondents representing those with fewer than 100 employees, 28% of respondents representing between 100 and 749 employees, 21% of respondents representing between 750 and 50,000 employees, and 2% with over 50,000 employees. The median org size in our study was 290.

Industry

The top industries represented in the survey are Healthcare & Social Assistance (11%), Manufacturing (11%), Technology (9%), Construction (7%), and Finance & Insurance (7%).

Location

Respondents to this year’s survey were predominantly in the United States (80%), with 13% in Canada and 7% from other countries, with no other country representing more than 1%.

Job Level

Respondents were a mix of job levels. Managers or directors made up about half of respondents at 49% combined. C-level executives made up 21% of respondents and VPs 5%. Individual contributors made up 26% of respondents.

Job Function

Respondents occupied a variety of job functions. While human resources and compensation dominate at 63% combined, we also saw responses from business owners (13%), operations (5%), and other functions.

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What are some key stats from CBPR?

According to the 2026 Compensation Best Practices Report:
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Almost 1 in 5 organizations (18%) have no pay-for-performance.

While only 43% of organizations are hiring, a much smaller minority of employers are reacting to the present labor market by lowering pay.

40% of organizations believe misinformation/disinformation is driving unfair pay perceptions.

30% of organizations are replacing workers with AI or plan to in the future.

61% of organizations are updating roles to include AI skills, but 55% aren’t paying for these skills.

45% of organizations are mature in compensation management according to the Payscale compensation maturity model, which is 12% growth YOY.

57% of organizations cite that transparency and accuracy of outputs are needed to trust AI for compensation decisions.

Almost half (49%) of organizations are targeting pay transparency across the organization or fully public in 2026, up from a third (33%) in 2025.

68% of organizations say their executive leaders view compensation as a strategic lever for business success.

75% of organizations say their executive team requests compensation reporting either occasionally or frequently.

63% of organizations believe their compensation policies drive positive outcomes.

61% of organizations have a compensation strategy and cite budget constraints as the greatest influence on that strategy.

48% of organizations are giving merit-based pay increases while 44% are giving “peanut butter pay increases” — pay increases are flat at 3.5%.

71% of organizations cite industry as the most important characteristic in salary data for market pricing, with sources like Payscale Peer on the rise in usage.

18% of organizations describe their workplace environment as fully in-person for knowledge workers — 24% offer a premium for working on-site.

60% of organizations say pay equity analysis is a current or planned initiative; less than 10% cited DEI de-prioritization as a constraint.

57% of orgs post salary ranges in job ads, 42% do it across all jobs regardless of location, but only 23% are fully prepared for the EU Pay Transparency Directive.

75% of organizations are giving variable pay in 2026, a 6% decline year-over-year that affects all types of bonuses.

How can we explain our compensation philosophy to employees?

A strong compensation philosophy explains how pay decisions are made, not just what people are paid. Employees should understand how talent competition, market data, internal equity, performance, and business priorities factor into pay decisions. Research from Payscale consistently shows that clarity and transparency around pay philosophy are strongly linked to higher trust and engagement, even when budgets are constrained.

Should we lead, match, or lag the market?

There’s no universal answer, as it depends on your compensation philosophy, talent scarcity, business strategy, and financial flexibility. According to Payscale’s Compensation Best Practices Report, 45% of organizations are targeting the 50th percentile in 2026. Some organizations will elect to lead the market for hard-to-hire or high-impact roles. Payscale’s products help organizations model where differentials are needed by role, industry, company size, and location.

What market data sources should we trust, and how do we blend them?

Trusted market pricing typically blends multiple sources, prioritizing those with timely, industry-specific, and employer-reported data. Payscale’s continuously updated salary data is often used alongside traditional surveys to improve relevance, especially for fast-changing or hybrid roles. Blending salary data sources helps reduce bias, smooth volatility, and create more defensible pay ranges.

How do we price roles that are new, hybrid, or rapidly evolving?

For emerging or hybrid roles, pricing should focus on core skills, scope, and impact rather than job titles. Payscale’s AI-supported solutions can help organizations craft a job description that is skills-based for benchmarking and leverage multiple market data sources, including data natively from HRIS systems, for market pricing. Regular review is critical as these roles stabilize or evolve.

How do we handle geographic pay differences in hybrid or remote work?

According to Payscale’s Compensation Best Practices Report, only 18% of organizations require knowledge workers to be fully on-site in 2026 and 24% offer a pay premium for hybrid workers to come into the office. When it comes to geographic pay, no specific methodology is superior as long as it is consistent. According to our survey, 26% of organizations pay a flat rate according to the location of their headquarters, the national median, or other baseline. Other methodologies include pay adjustments by pay zone, zip code, or using a revenue location model. Clear pay communications are essential so that employees understand why geography affects pay.

How wide should salary ranges be?

Range width should reflect job level, career progression, and performance differentiation. Entry-level or tightly defined roles often have narrower ranges, while senior or highly variable roles often benefit from wider ones. Payscale services can help organizations calibrate ranges that are in compliance with pay transparency laws and allow for growth without encouraging compression or inequity.

How often should ranges be adjusted for market movement or inflation?

It is considered a best practice to review ranges at least annually, but high-volatility roles may require more frequent checks. Payscale’s on-demand market data comes straight from HR systems and enables HR teams to monitor movement throughout the year rather than waiting for annual survey updates. Adjustments should be targeted, not automatic, to preserve budget discipline.

How often should we conduct pay equity analyses?

Many organizations conduct pay equity audits annually, usually before major compensation events like merit cycles or as part of restructuring. However, with solutions from Payscale like Paycycle, pay equity can be monitored continuously as new employees join the company, change roles, are promoted, or have their pay adjusted. Ongoing analysis reduces legal and reputational risk.

Are merit increases effective at motivating employees?

Merit increases are often too small to significantly motivate behavior, especially in low-budget years. Payscale research suggests employees value fairness, transparency, and growth opportunities as much as or more than incremental pay increases. However, merit-based pay increases are still the best practice. They just work best when combined with clear performance expectations and meaningful differentiation, which may also be achieved in combination with variable pay, promotions, and a pay progression strategy.

What metrics indicate a healthy compensation program?

Good metrics to track include market competitiveness (compa-ratio), internal pay equity, pay compression, retention, time-to-fill, employee engagement, and employee understanding of pay decisions. Payscale can help organizations track these metrics over time and spot emerging issues as well as perform merit modeling for budget recommendations. A healthy program supports attraction, retention, engagement, and trust, not just cost control.

What role should technology or AI play in compensation decisions?

Compensation technology is evolving rapidly, and AI is going to accelerate the compensation management industry. Artificial intelligence has the potential to improve speed, consistency, and accuracy, elevating insights and guiding strategy. However, it is not a replacement for human judgment. Payscale has the potential to revolutionize tasks like job matching, market pricing, pay equity analysis, and scenario planning while maintaining explainability and governance. The goal is making better decisions at scale.

How do we best explain pay decisions to employees?

Pay communications are an essential part of compensation management. Employees want to understand how market data, role scope, skills, performance, inflation, location, and internal equity factor into decisions — even if the answer isn’t the one they hoped for. Clear explanation of salary ranges, where an employee sits within the range, and what drives movement over time builds trust and reduces speculation.

Payscale research consistently shows that transparency about how pay is determined has a stronger impact on trust and engagement than the absolute pay level itself, making manager readiness and consistent messaging just as important as the numbers.

According to the 2026 Compensation Best Practices Report, 40% of organizations say that pay communications are handled on a case-by-case basis, mostly through managers. However, the best practice is proactive, transparent communication explaining the reasons with evergreen resources always available and thorough total rewards statements or total cash compensation statements for each employee.

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