Amid low unemployment levels and a growing skills gap, employers are retooling their compensation and benefits strategy to attract and retain workers. In 2025, compensation budgets are expected to remain above historical trends, and benefits will become even more personalized, experts say.  

Josh Bersin, CEO of human capital advisory firm The Josh Bersin Co., said companies will need to ask themselves what deal they offer to workers and how their employee experience compares in the battle for talent.  

“As we move into 2025, rising demands for inflation-adjusted pay, greater flexibility (with remote working as a standard expectation), and persistent labor shortages may force organizations to reevaluate their entire benefits stack,” Bersin said.

Experts shared with HR Dive their predictions for the year ahead on the compensation and benefits front.

1. Salaries will remain steady

Ruth Thomas, pay equity strategist at Payscale, a compensation software and data company, predicts wage growth will remain steady, driven by economic conditions, inflationary pressures, increased transparency expectations and continued competition for skilled workers.

To that end, employers said they expect to increase their compensation budgets by 3.3% for merit increases and 3.7% for total salary increases for nonunion workers in 2025, a recent Mercer report found. That is on par with last year’s increases and shows a continued investment in the workforce, Mercer said.

Amy Garefis, chief people officer for ZipRecruiter, said companies will be focused on compensation and benefits “as a key factor for retention and talent attraction this year.” She highlighted a recent ZipRecruiter survey that found that 39% of the more than 2,000 companies surveyed experienced higher turnover in 2024, and the most commonly cited reason was inadequate compensation or benefits.

“In 2025, shifting legislation and tight budgets will likely drive companies to be more strategic, focusing investments on high-impact areas like retaining top performers and optimizing hiring processes,” Garefis said.

Part of that will involve turning to pay-for-performance models, and 30% of employers expect to increase the share of compensation tied to performance, she said.

Compensation also could be tied to competencies, Mike Ohata, a talent strategy advisor for St. Charles Consulting Group, told HR Dive. As organizations continue to develop skills-based models, they likely will use “proficiency and competence as part of performance and compensation decisions.”

2. Employers will finally contend with salary transparency

Fourteen U.S. states and four Canadian provinces will have salary transparency laws in place by the end of 2025 and all European Union countries will by the end of 2026. Yet 75% of companies aren’t ready for pay transparency laws, a December report by Aon plc, a global professional services firm, found.

That means most employers have a long way to go to be ready for compliance and will need to evaluate their compensation strategies, experts say.

The incoming Trump administration will likely try to weaken the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board and the U.S. Department of Labor, which could affect initiatives designed to benefit workers, according to Lulu Seikaly, senior employment counsel for Payscale. That includes efforts to increase the federal minimum wage and pay transparency, Seikaly said.

But despite delays at the federal level, state initiatives likely won’t come to a complete halt, Seikaly said.

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