In early 2024, we predicted total rewards leaders would respond to economic disruption, technology transformation and labor market shifts by optimizing reward cost, addressing employee affordability, advancing transparency, prioritizing career and skills development and leveraging artificial intelligence (AI).
Our conversations with over 100 global total rewards leaders showed significant progress in many of these areas in 2024. The focus on optimizing reward cost and advancing pay transparency proved particularly prescient. Emphasis on careers and building skills taxonomies continues. AI adoption has lagged as leaders await proof of concept, but it will likely accelerate over the next two years.
In 2025, total rewards leaders will face familiar and new challenges, including rising salary and healthcare costs, organized labor activities and new global trade policies. Critical skill shortages and stagnant labor markets will lead to employee burnout and disengagement masked by low attrition. Geopolitical tensions and changing global regulations will challenge global rewards policies.
As many total rewards leaders will need to address these challenges without additional budgets or resources, they will need to focus their time, energy and resources on areas delivering the greatest impact. In rethinking their strategies across all elements of total rewards (pay, careers, benefits and wellbeing), we predict the following actions will take priority:
01
Organizations invest heavily in pay, benefits, career and wellbeing programs, but leaders struggle to show the value created. How can organizations direct their total rewards spending more effectively?
Improving analytics capability and stakeholder reporting
Progress in data analytics (e.g., data lakes, new vendor reporting capabilities) will help leaders connect input data across vendors and systems (e.g., participation and utilization, benefits cost drivers, employee sentiments) with outcomes (wellbeing, productivity, engagement, presenteeism/absenteeism). This will enable new ways to measure spending effectiveness and improve rewards dashboards and stakeholder reporting. In particular, with corporate boards’ increasing interest in human capital governance, total rewards leaders should be ready to present a succinct and compelling narrative on how investment in total rewards drives sustainable long-term value for the business.
Understanding what employees need and want
To respond to evolving employee needs, total rewards leaders will work to get closer to their customer — the employee. They will use more agile listening (e.g., virtual focus groups, pulse surveys), AI to analyze employee preferences (e.g., open-ended questions in surveys, exit interviews, publicly available data) and conjoint surveys to understand employees’ willingness for trade-offs.
Redirecting total rewards spending to what matters
Improved access to insights will allow organizations to redirect budgets on programs that improve outcomes and reflect employees’ needs and values. As organizations manage ongoing budget constraints, they will consider bold moves such as taking a below-market position in certain parts of the rewards portfolio to free up investment in areas expected to yield better outcomes. This could include, for example, allocating pay budgets based on skills supply/demand projections and new features or programs designed for caregiving support. And total rewards leaders will use data to justify targeted investments in the total rewards function (e.g., employee-facing technology, investments in data, analytics and AI).
02
Even the best-laid plans fall flat if employees don’t feel the benefit from the rewards investment. As offerings become increasingly complex, employees may not fully understand what they have or how to use it. Further, increased burnout from stagnant labor markets can lead to employee dissatisfaction or disengagement regarding their pay and career opportunities. In 2025, leaders will look for new ways to improve employee appreciation of their pay, benefits, career and wellbeing offerings.
Increasing personalization
Total rewards leaders will adopt more personalization in the delivery and communication of programs. Organizations will increasingly deliver more targeted flexibility and choice to meet the diverse needs of their employees, while not overwhelming them with too many options. We have already seen such innovations in the United States and predict more total rewards choice in 2025 globally. Advancements in technology and AI will help organizations make communications more personal, including custom messages and nudges based on each person’s health, wealth and historical program use.
Being more transparent
One outcome of regulations requiring greater rewards transparency (e.g., the EU pay transparency directive) is that we expect leaders to embrace transparency to build employee trust. Beyond compliance with regulations (e.g., sharing salary ranges or publishing pay equity metrics), total rewards leaders will bring employees “into the tent” on how decisions are made, help employees navigate career structures to grow their careers (and in turn, their pay) and equip managers to be advocates for rewards messages and questions.
03
Amid technological disruptions, geopolitical and economic uncertainty and a stagnant labor market, employers must prioritize boosting sustainable productivity and performance. Total rewards leaders will adopt new strategies to address these challenges, with a focus on creating solutions that can be sustained over the long term.
Giving performance management a facelift
Performance management will undergo a facelift, featuring unbiased fairness checks and audits, regular feedback mechanisms, adaptable performance metrics and more real-time recognition of impact and contributions.
Total rewards leaders will prioritize productivity and establish incentives for individuals who deliver exceptional value, especially in a rapidly changing environment where priorities may frequently shift. Organizations will also revise global recognition programs to improve employee utilization and value and include wellbeing options in recognition hubs to drive greater synergies.
Building skills and careers that matter
We also expect companies to make strides in developing the necessary infrastructure in knowledge architecture (i.e., skills and competencies), career strategy (i.e., philosophy for career movement, career paths and transparency) and career activation (i.e., training and development, communication and change management). These career programs provide significant leverage for employers to engage the workforce and enable them to more precisely differentiate rewards fairly and equitably, based on critical skills and experience that create long term sustainable value for the organization.
04
While organizations have invested significantly in workforce health, leaders question the strategy’s effectiveness as global health costs outpace inflation and wellbeing outcomes continue to be challenging. The increase in frequency of macro events (e.g., global inflation, floods, wildfires and wars) and volume of corporate transactions expected in 2025 will further strain employer budgets and employees’ physical, financial, mental and social health.
Addressing burnout beyond programs
Organizations will go beyond vendors to solve burnout and mental health challenges. They will adopt new work strategies (e.g., remote/hybrid work, new work schedules, improved leave policies) and train leaders and managers to behave in a way that curbs these risks (e.g., support in time away from work, mental health coaching). New technologies, such as AI copilot tools, will play a role in reducing employee fatigue (e.g., improved efficiency of work-related meetings, helping with automated or administrative tasks), but require proper support and training in their adoption.
Prioritizing employee financial resilience
Financial wellbeing will be a focus in 2025, since financially unwell employees are a business risk (e.g., turnover of skilled workers, safety incidents due to stress, absenteeism, presenteeism). Measurement of the financial health of employees using employee pulsing and data analytics will be an important first step in understanding where to target investments. New pay and benefits solutions will be designed and implemented to promote financial security and flexibility. And financial literacy will become more than “how to save for retirement” or “how to pay down debt;” it will also include more transparent conversations around career, job and skilling opportunities (and risks, given forthcoming advancements in automation).
Pressure-testing the system
Total rewards professionals will focus on supporting employee wellbeing in times of unpredictable crises (e.g., geopolitical, economic, pandemic, weather-related). They will test their models against potential adverse events to better understand vulnerabilities, build solutions to help employees who may be displaced by these events and operationalize their strategies with comprehensive playbooks and oversight protocols.
05
Total rewards leaders will find ways to improve efficiency, better leverage their global scale, reduce cost/risk and deliver more consistency in employee outcomes globally. Doing more with less requires greater coordination of internal and external resources and technology. And as complexity increases, good governance is imperative.
Improving efficiency with AI and technology
Advancements in technology and automation, coupled with new vendor capabilities and solutions (e.g., pooled employer defined contribution retirement plans), will help total rewards professionals streamline administrative and routine tasks. Leaders will reevaluate their team structure to better leverage emerging technologies and shift brainpower from administrative tasks to great analytical capabilities.
Increasing purchasing power
Increased adoption of global brokerage arrangements and other cross-country approaches (e.g., captives, pooling, international pension plans, global data agreements, global grading structures) will help organizations better leverage scale, optimize financing alternatives and drive total rewards strategy more centrally. And with greater access to global data and insights, organizations will expand global minimum policies (e.g., minimum standards for family-forming benefits, leave policies, retirement arrangements).
Reducing risk
Organizations will seek to reduce operational risk through improved reporting and oversight. Increased complexity of global programs, coupled with adoption of new global HR technology platforms (e.g., HRIS models), will increase the need and utility for global inventories of pay, benefits, career and wellbeing offerings. Data security will continue to be a focus area. And new legislation will require organizations to evaluate their global policies around living wages and transparency.
Looking to 2025 and beyond, organizations must be flexible and focus on strategic investments that match the changing needs of their workforce. Total rewards leaders will be under continued pressure to show the return on their investment using robust data analysis and measurement strategies. Personalization and transparency will be paramount, fostering a deeper appreciation and understanding of pay, benefits and career opportunities. Addressing performance management, career building and workforce health and wellbeing will be essential to improve productivity and engagement challenges. Ultimately, these efforts will make a difference to organizations looking to find a competitive edge in 2025.
(We’ll check back with you same time next year to let you know how our 2025 predictions fared!)
