“While top-line budgets are generally holding steady, the real shift is happening beneath the surface. Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals despite uncertainty,” said Brittany Innes, director, Rewards Data Intelligence.
Despite stable pay increases, employees are staying put. Fewer organizations this year have found employee stability challenging compared to the past two years. Less than one-third of organizations (30%) report difficulty attracting or retaining employees, representing a decrease of 11 percentage points since 2023.
In response to market conditions in which turnover is relatively low and burnout and disengagement remains a concern, organizations have taken a number of actions to support their workforce, including improving the employee experience (47%), enhancing health and wellness benefits (43%) and increasing training opportunities (40%).
Additionally, employers are adjusting compensation programs to address the competitive labor market and inflationary pressures. These actions have included conducting a compensation review of all employees (50%), performing a compensation review of specific employee groups (48%), hiring people higher in relevant salary ranges (45%) and raising starting salary ranges (40%). Over two-fifths of organizations (43%) have enhanced their use of retention bonuses or spot awards and 37% have targeted base salary increases for specific employee groups.
As organizations focus on these efforts, they continue to wrestle with higher annual payroll expenses. The average annual payroll expense increased by nearly 4% (3.6%), and 7 in 10 organizations report total annual payroll expenses higher than last year.
“As employers navigate continued economic uncertainty, ongoing increases in labor costs and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises. These include career development, wellbeing, flexibility and equity—because these are critical for performance, retention and resilience in a shifting market,” said Lori Wisper, managing director, Work & Rewards.
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