4 compensation trends that will impact 2025

4 compensation trends that hint at what's in store for 2025

January 6, 2025 5:30 AM

A woman looks at two items while standing in a grocery aisle.

The year has just kicked off, and anxieties around the cost of living are already high — the spread of bird flu has already sent beef and egg prices up, and the possibility of the Trump administration imposing tariffs on Mexican, Canadian and Chinese goods spells economic trouble for employers and Americans alike.

And given the state of wages, 2025 does not look promising. According to software company BambooHR, 50% of employees are struggling to make ends meet, with 60% paying off debt that, on average, consumes 30% of their paycheck. Moreover, raises have shrunk, dropping from a 6.2% increase in 2022 to 3.6% in 2024. BambooHR estimates that two in five salaried employees didn't receive raises last year.

These numbers don't bode well for workers or employers, argues Anita Grantham, head of HR at BambooHR. She acknowledges that due to above-average wage increases in 2021 and 2022 and benefit expansions, companies' budgets may feel smaller and smaller, especially as employers try to anticipate the economic landscape under a new administration. However, Granthman stresses now is not the time to risk losing talent.

"The cost of talent replacement is high — employers always sacrifice more with the cost of turnover," she says. "If you keep an employee with you, it increases their value. You're not out there hiring, recruiting, onboarding and training. My biggest piece of advice to leaders is to know and understand the marriage between compensation and performance."

Replacing workers costs up to two times a former employee's salary, according to management consulting company Gallup. This doesn't necessarily factor in what employers lose in productivity and overall team performance when someone exits the company. Grantham urges employers to be aware of the current state of compensation as they strategize their next steps.

Here are four compensation trends to track in 2025.

Gender pay disparity is still an issue

BambooHR found that men, on average, received a 4.8% raise in 2024, nearly double women's average 2.7% raise. While these numbers aren't surprising, it shows how far companies are from closing the gender pay gap. Notably, just 27% of men feel negatively about their compensation, compared to 39% of women.

This disparity only widens when looking at executive leadership. According to the Economic Policy Institute, CEO pay increased by 1,460% in the last 40 years. Unsurprisingly, BambooHR's survey reveals that over 60% of Americans believe their leaders are out of touch with the financial struggles of their typical employees, and 55% believe their CEO is overpaid.

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"When you haven't struggled for groceries for a really long time, it's hard to remember what it was like to struggle," says Grantham. "If the average pay for people inside your company is $70,000 or $80,000 a year, you layer a 20% to 30% tax rate on top along with groceries and gas, and it becomes very hard to make ends meet."

Grantham asks that employers be aware of what employees' wages and benefits can actually afford them.

"Treat your employees like your customers," she says. "We dissect our customers all the time as an audience. We should do that with our people and remember our audience."

Money matters

According to BambooHR, 37% of workers agree that pay is the most important part of their compensation package, refusing to take a pay cut for other benefits like a four-day workweek or more PTO.

"While benefits are still important, your overall cost is increasing for life," says Grantham. "It's really important, again, to survey your employee base and find out what matters to them."

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While it usually goes without being said, Grantham reminds employers that an employee's compensation equates to their sense of value. For example, 42% of VP and C-suite workers feel extremely valued by their company, whereas just 12% of individual contributors say the same. Still, good managers can go a long way in helping employees feel valued, making up for what wages lack, underscores Grantham.

"There's always room for improvement for companies to help their employees feel valued," she says. "And the way I see that happening is directly from the manager to the employee."

Pay is not transparent enough

According to BambooHR, a majority of employees agree: Pay transparency improves equality. However, 42% of salaried employees report that their company doesn't practice transparency, and only 12% of employees say their company encourages discussions about pay among co-workers, which is down from 17% in 2023.

Grantham predicts that the push for pay transparency isn't going away, as much as employers are dragging their feet. Ultimately, companies need a clear pay structure that accounts for duties and performance.

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"Leaders need to be clear about [pay] outcomes," says Grantham. "A worker is thinking, 'This is how much I get paid, and Sally and Johnny get paid so much more. Why is that?' As a leader, you can say, 'You have the opportunity to make more money when you deliver on these metrics, and this is how I'm going to help you do that. In this environment, [pay transparency] can work."

Optimism isn’t dead

BambooHR found that 73% of employees feel positive emotions when describing their financial compensation, a drop from 73% in 2023 and 83% in 2022. Despite the downward trend, this means a majority of employees hold some optimism that they can live with their current pay. Notably, Gen Z is the most positive generation, with 79% expressing satisfaction compared to 70% of Millennials — although this may just speak to younger generations having less financial burdens, like dependents.

Grantham urges employers to see this as an opportunity to build on that positivity while the labor market is in their favor.

"We're in a phase of stability where dependability on a paycheck matters," she says. "It's harder to find work and people are trying to find the good in the situation they have."