2025 Compensation Trends: Pay Transparency, Slowing Raises, and More

The past year was a big one in the compensation realm. It included increased pay transparency, stalemates on gender pay equity, and slowing pay increases due to a stabilizing labor market.

Expect some of those trends to continue this year, experts say—with a couple of additions.

For one, pay increases will continue to be an important arrow in employers’ quivers for retaining and attracting talent, but the red-hot pace of raises that occurred over the past few years is subsiding.

“The labor market has cooled relative to the extraordinary conditions of 2021-2023 but remains tight by historical standards,” explained Justin Ladner, senior labor economist at SHRM. “In other words, even though compensation growth rates appear to be stabilizing, competition for labor remains strong overall.”

Various research finds that employers are planning to dole out pay raises in 2025 similar to those they awarded in 2024—although slightly lower. A recent report from Mercer found that employers expect to increase total salary budgets for nonunionized employees by 3.7% on average, compared with the 3.8% average budget increase awarded in 2024. (That’s slightly above Mercer’s fall projection of 3.6% increases for nonunionized employees.) Meanwhile, merit increases are expected to rise by 3.3% in 2025, the same as in 2024.

In summer 2024, compensation firm Payscale found that U.S. employers are planning for 3.5% pay raises on average this year—a dip from the past couple of years—due to a cooling labor market. Consulting firm WTW found that planned salary increases will be 3.7% in 2025 on average, compared with the 3.8% average budget increases awarded in 2024.

“Barring an unforeseen shock that disrupts the labor market, it seems reasonable to assume that the conditions of 2024 will largely persist in 2025, with compensation growth remaining stable or slightly declining,” Ladner said.

But projections are just that—projections. Employers may alter their budgets due to a variety of factors, including economic changes, inflation, and talent challenges. Mercer found that only about 20% of the more than 850 organizations surveyed in November had confirmed their compensation budgets.

There will also “certainly be significant variation in these conditions across the labor market based on skill set and industry,” Ladner said.

Pay Transparency and Pay Fairness

An increased focus on pay transparency will also continue in 2025, experts said.

 “This push toward transparency has been building for years, and with regulatory changes like pay transparency laws in many U.S. states and the EU’s Pay Transparency Directive, organizations are being pushed to disclose salary ranges, address pay inequities, and ensure internal fairness,” said Alex Bertin, head of total rewards at BambooHR, an HR platform company based in Draper, Utah.

New pay transparency laws have taken effect or will take effect in five states this year: Illinois, Minnesota, New Jersey, Vermont, and Massachusetts.

Part of the push around pay transparency is because employees, particularly those entering the workforce, “are demanding more clarity about how pay is determined, making transparency something that all companies need to have a plan to address,” Bertin said. Indeed, a recent survey conducted by London-based business services company StandOut CV found that not disclosing pay is one of the biggest red flags cited by job seekers.

Despite there being more attention on pay transparency and pay equity, many employers still have a lot of work to do, research has found.

Similarly, Lexi Clarke, chief people officer at Payscale, said a big compensation trend to watch this year is how the perception of pay fairness is impacting tension between employers and employees. For example, she said, “recently there has been politically motivated discussion around employees with sponsorship or on H-1B visas, contractors, offshoring, and other methods of employing workers that are perceived to save on costs when it comes to payroll. This can create friction in the workforce.”

BambooHR research recently found that one-third of employees (33%) feel negatively about their current financial remuneration—a significant jump from 23% in 2023—and 50% struggle to make ends meet due to rising costs.

Clarke said organizations this year will need to craft thoughtful talent strategies that “are inclusive and fair when it comes to compensation and benefits.

“This will require a data-driven compensation strategy that prioritizes pay equity, pay transparency, and pay communications to ensure that all employees regardless of their status—understand how their skills and experience are valued,” she said.

Skills-Based Pay

Another trend to watch in 2025 is skills-based pay, a trend that has been gaining momentum alongside skills-based hiring in the past couple of years. That’s when pay is determined based on an employee’s specific skills and abilities rather than their job title or position.

“I’ve observed a growing shift toward skills-based pay, moving away from role-based compensation,” Bertin said. “This trend is particularly evident in high-demand fields such as AI [artificial intelligence] engineering and data science. Many individuals claim expertise in these areas, but organizations are prioritizing measurable skills to ensure their investment in these premium roles delivers the desired ROI [return on investment].”