State of the market
The economy improved in 2024 compared to 2023, with inflation coming down, interest rates cut in the back half of the year, and hiring exceeding expectations in December. Going into 2025, the Federal Reserve announced that a recession had been avoided. The resilient U.S. economy was poised for growth.
Organizations report improved business performance in 2024 compared to 2023 according to our survey, with more organizations saying they met or exceeded revenue goals in the previous year compared to our report last year.
Labor turnover
The average voluntary turnover rate decreased to 13 percent in 2024. This aligns with analysis of a cooling labor market, corroborating perception of a frustrating job market for job seekers where employers have more power over workers.
We also calculated the median voluntary turnover rate and compared it to workplace environments that specify policies for knowledge workers. With this analysis, we see a correlation between workplace flexibility and retention.
Tension over salary costs
The combination of economic uncertainty, widening wealth inequality, and a power imbalance in the labor market has created tension between workers and employers. Almost half of organizations (47 percent) say they are experiencing increased tension between ensuring fair pay and optimizing spend.
In response to lower inflation and a labor market that favors employers, roughly half of organizations have taken action to decrease spend on compensation, with the most popular strategy being to reduce pay increases.
Pay increases
In 2025, most employers are planning to give lower pay increases than they have in previous years. At the median, organizations are planning on giving base pay increases of 3.5 percent in 2025 compared to 3.8 percent given in 2024.
In the interactive chart below, you can also look at pay increases by industry, company size, top performers vs. non-top performers, and Canada vs. the United States for both what organizations are planning to give in 2025 and what they actually gave in 2024.
DEI & pay equity
With the new U.S. administration, diversity, equity, and inclusion (DEI) is being targeted. Equity includes pay equity, which is the practice of paying employees fairly for the same or similar work, regardless of their race, gender, or other legally protected characteristics.
At the time of our survey, only a minority of organizations (11 percent) said they were planning to pull back on DEI initiatives in 2025.
In response to online debates from the summer of 2024, we specifically asked HR professionals if they personally believed equity should remain a central pillar of DEI, and 66 percent said yes.
While DEI programs are being challenged, pay equity analysis has surged in popularity. We have seen a small decline in interest since the height of the Great Resignation, but 57 percent of organizations say that pay equity analysis is a planned or current initiative compared to only 38 percent in 2020.
Pay transparency
The demand for fair pay is under greater scrutiny thanks in part to pay transparency legislation, which began to pick up steam in 2022 and is continuing to expand. In 2025, the percentage of organizations publishing pay ranges in job ads (regardless of whether it is required by law) has declined only slightly (56 percent) compared to 2024 (60 percent).
Despite some pullback, organizations continue to want to be more transparent about pay than they are according to their current and targeted position on the pay transparency spectrum.
Compensation strategy
The percentage of organizations that have a compensation strategy has risen from less than a third in 2020 to a majority in 2025. Compensation strategy is essential for aligning with business changes and needs, including building equitable pay structures on the journey to pay equity and pay transparency.
Artificial intelligence
In 2024, the use of AI went mainstream. HR professionals are now actively adopting AI for use in HR and compensation management. Roughly a fifth of organizations are totally on board with AI while half are cautiously optimistic, suggesting AI in the use of compensation management cannot be ignored.
We also asked if organizations have any intention to replace workers with automation/AI now or in the future. Most organizations responded that they are not doing this and do not plan to (52 percent). However, 18 percent said they are actively doing this now and another 20 percent are considering it.
Compensation maturity
The Payscale Compensation Maturity Model is a framework designed to help organizations evaluate and improve their compensation strategy, practices, and policies over time. It provides a roadmap for companies to progress from basic to advanced stages of compensation management, aligning pay practices with business goals and enhancing employee satisfaction and retention.
In 2025, Payscale returns to a five-step compensation maturity model. According to this model, a third of organizations are mature (Advancing or Optimizing), while two-thirds are still maturing.
We continue to see a relationship between compensation maturity and compensation technology, with the strongest link seen between using purpose-built compensation software like Payscale in the Advancing and the Optimizing stages of the compensation maturity model, which was also true last year. Meanwhile, not using compensation technology prohibits progress in compensation maturity.
Methodology
The 2025 Compensation Best Practices survey gathered 3,595 responses from November to December 2024, with a completion rate of 55 percent. A breakdown by organization size, industry, and other firmographics is available in the methodology at the end of the full report.
Top-performing organizations are defined as those that exceeded their revenue goals in 2024. In this year’s study, 25 percent of respondents fit this criterion, which is up from last year (21 percent).
We separate out six organizational sizes for comparison. About 27 percent of respondents represent organizations with fewer than 100 employees; 31 percent of respondents represent midsize organizations with between 100 and 749 employees; 25 percent of respondents represent organizations with between 750 and 4,999 employees; 7 percent represent organizations with between 5,000 and 9,999 employees; 8 percent represent organizations with 10,000 to 49,999 employees; and 2 percent represent organizations with more than 50,000 employees.
Our report provides response data for organizations in 19 industries. As in prior years, the top industries represented in the survey were Healthcare & Social Assistance (11 percent), Manufacturing (11 percent), Technology (9 percent), and Finance & Insurance (8 percent).
Respondents to this year’s survey were predominantly in the United States (79 percent), with 12 percent in Canada, and the rest from other countries, with no other country representing more than 1 percent.
Respondents were a mix of job levels this year. Managers or directors made up half of respondents at 51 percent combined. Executives made up 20 percent of respondents with VPs and C-suite positions combined. Individual contributors made up 28 percent of respondents.
Our respondents play a variety of roles in the compensation process, including reviewing and making pay-increase recommendations (56 percent), market price or benchmark jobs (52 percent), creating or managing job descriptions (65 percent), selecting compensation data sources (49 percent), using compensation software to manage pay (36 percent), and more.
