HR leaders are preparing for a challenging year as labour tensions, pay transparency, and economic pressures drive compensation decisions, according to Payscale’s 2025 Compensation Best Practices Report.
The annual report, released Wednesday, highlights a growing divide between employer pay policies and employee expectations, with compensation strategy emerging as a critical factor in talent retention.
“We’re anticipating a ‘Year of Contention,’ as 2025 could bring a clash between employers tightening budgets and employees advocating for fair pay and better working conditions,” said Lexi Clarke, chief people officer at Payscale.
The report found that organizations plan to provide an average base salary increase of 3.5% in 2025, slightly down from 3.8% last year. Smaller organizations are leading with higher raises, while larger employers focus on cost control. Pay remains the top HR challenge for organizations, surpassing recruitment and retention concerns.
Pay transparency and equity under scrutiny
The report highlights a disconnect between growing support for pay transparency and its actual implementation. While 72% of HR professionals support sharing pay ranges at least at the individual level, only 52% of organizations currently do so. The proportion of companies posting salary ranges in job ads has also dipped slightly from 60% in 2024 to 56% this year.
Despite recent political pushback against diversity, equity and inclusion (DEI) efforts, a majority of organizations remain committed to pay equity. The report found that 57% of companies plan to maintain or expand pay equity initiatives in 2025, up 19% since 2020, though investment has declined slightly from last year.
“Despite waning support, DEI initiatives remain a competitive advantage—equity should be seen as synonymous with merit, not separate from it,” said Ruth Thomas, pay equity strategist at Payscale.
AI adoption and compensation technology on the rise
The integration of artificial intelligence into HR practices is accelerating, with 48% of organizations optimistic about AI’s role in pay equity monitoring and compliance enforcement. While 47% use AI for job descriptions, the most effective strategies combine automation with existing compensation software.
Most organizations (52%) do not plan to replace human workers with AI, though 18% have started doing so and 20% are considering it. Meanwhile, the adoption of compensation management technology is increasing, with 30% of organizations now using purpose-built compensation software, up 5% from last year.
The report is based on survey responses from 3,595 HR professionals and business leaders collected between November and December 2024.
