Unlocking the future: Top 5 compensation predictions for 2025

Amid 2025’s expected priorities (i.e., performance management season, salary budget planning, goal setting and alignment), compensation and HR practitioners can always count on the unexpected to unfold over the course of the year. Following are our top 5 predictions for compensation and HR leaders to anticipate and mitigate for.

1. 01

   Data: Strategic selection for purposeful analysis

   
   
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     Prediction

     In 2025, an increasing number of data sources with inferred (not actual) value will necessitate meticulous curation that is aligned with specific strategic objectives.

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     Call to action

     Prioritize your data based on its purpose and known risks.

   By strategically selecting data sources by use case and risks, compensation professionals can ensure they meet the dual goals of data-driven decision making and maintaining trust and transparency within the organization.

   In salary benchmarking

   • Annual compensation cycle: Secure reliable, trusted data from established vendors. This data must withstand scrutiny from the board of directors and C-suite to set compensation baselines and ensure decisions are defensible and well-informed.
   • Equity and transparency: A globally consistent, non-volatile compensation data source is crucial here. Data should be high-quality to support compliance with international standards as well as local laws (e.g., EU Pay Transparency Directive, U.S. state legislation) to foster an environment of pay equity.

   Supplement your time-of-hire challenges with dynamic sources

   • Offer-letter data: Monitor immediate market conditions and competitive offers by examining offer-letter data. However, treat this as supplementary rather than foundational, as selective reporting lacks depth and accuracy, and can introduce volatility and potential biases.
   • Job board data: This data is valuable for tracking market dynamics in specific job families. Again, though, use it judiciously as it might not represent the full market spectrum.

   Mitigate risks associated with crowdsourced data

   • Educate managers: Provide training on the limitations and potential biases of crowdsourced data. Emphasize that, while useful for broad trends, these sources lack the depth and validation of professional benchmarks.
   • Develop talking points: Equip managers with clear, concise messaging to explain why company data (from trusted sources) might differ from what employees find online. Highlight the company’s commitment to using comprehensive, vetted data for fairness and accuracy in compensation decisions.
   • Encourage critical thinking: Teach employees to critically assess the data they encounter and promote an understanding of data reliability and source credibility.

1. 02

   The evolving role of compensation professionals in supporting and implementing business strategies

   
   
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     Prediction

     Compensation teams will become pivotal in shaping business strategies rather than just supporting them.

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     Call to action

     Have a good understanding of business priorities and financial knowledge to support short- and long-term strategies.

   • Develop a strategic vision: Use trend data to craft compensation strategies that align with future business objectives. Compensation professionals should be ready to evangelize these strategies across the organization.
   • Deepen analytical skills: Master budget allocation by job families and geographies. Also, employ scenario modeling to anticipate and guide business decisions. Help identify business leaders prioritize spending for yearly compensation increases vs. hiring for growth or hiring for critical talent or upcoming transformational business skills.
   • Integrate workforce analytics: Embrace workforce optimization tools to enhance your understanding of how compensation strategies can drive workforce planning and business outcomes.

1. 03

   Use of AI to enhance decision making and communication

   
   
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     Prediction

     AI will become a standard tool in compensation strategy and communication.

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     Call to action

     Understand the capabilities that AI offers as well as its limitations.

   • AI for analysis: Use AI to sift through large datasets to find patterns in compensation trends. These can inform more effective retention and talent management strategies.
   • AI for communication: Use AI to develop messaging and materials that explain complex compensation strategies in clear, persuasive terms for stakeholders.
   • Stay ahead: Keep abreast of AI advancements to continuously refine how these tools can serve compensation analysis and planning.

1. 04

   Fit-for-purpose reward structures

   
   
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     Prediction

     Reward systems will undergo significant redesign to maximize both employee engagement and business impact.

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     Call to action

     As markets around the world continue to stabilize, take the opportunity to revisit and refresh your rewards.

   • Assess and refresh: With salary budgets stabilizing, now is the time to re-evaluate total rewards structures to ensure they align with contemporary workforce needs and business objectives.
   • Skill-based compensation: Shift your focus toward rewarding skills, especially those critical for future business success, to foster a performance-driven culture.
   • Cultural shift: Work toward changing the employee mindset from questioning their value to appreciating it. This involves understanding and communicating the total value of their job to them effectively.

1. 05

   Addressing the dual challenge of navigating pay transparency

   
   
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     Prediction

     Pay transparency becomes foundational in compensation strategy thanks to growing EU and U.S. legislation.

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     Call to action

     Understand where pay transparency stands in your market(s) and ensure your organization is complying or making compliance plans.

   • Compliance and strategy: Adapt compensation strategies to comply with the EU Pay Transparency Directive and similar U.S. state laws mandating salary-range disclosures. When executed properly, this transparency can enhance employee trust and engagement.
   • Strategic pay setting: Evaluate hiring at the top of salary ranges to attract top talent while being mindful of potential pay compression issues.
   • Innovative solutions to compression: Explore new structures for job families and avoid grouping high and low volatility roles together, thus reducing compression challenges and better facilitating pay transparency.
   • Highlight value: Use transparency as an opportunity to showcase your organization’s commitment to pay equity, potentially attracting a more diverse talent pool and fostering an inclusive culture.

Times are changing

As we move into 2025, compensation professionals are urged to not only react to these trends but also proactively shape the strategies around them. This stance ensures compliance with emerging regulations as well as positions organizations to leverage their compensation practices for a competitive advantage, employee satisfaction and overall business success.

Authors

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Russ Wakelin

Global Product Development Leader, Rewards Data Intelligence

email Email

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Sambhav Rakyan

Global Business Leader, Rewards Data Intelligence

email Email phone +91 124 432 7173

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