Payscale Inc., the leading provider of compensation data, software, and services, has released its flagship report, the 2025 Compensation Best Practices Report. Payscale’s sixteenth comprehensive annual report reveals the latest workplace and compensation trends, analyzing data and insights from industry professionals and HR leaders amid DEI backlash, labor tensions, and broadening pay transparency legislation.
“We’re anticipating a ‘Year of Contention,’ as 2025 could bring a clash between employers tightening budgets and employees advocating for fair pay and better working conditions,” says Lexi Clarke, chief people officer at Payscale. “In this environment, listening to employees and leading with fairness isn’t just the right thing to do—it’s a competitive advantage. A cooling labor market, rising pay transparency, and the potential for an economic rebound could reignite the battle for top talent. Companies that invest in compensation strategy and prioritize equitable practices will be best positioned to attract, retain, and empower their workforce.”
Employers are balancing cost controls with the demands of a competitive labor market where pay transparency and retention are key. Organizations plan to give a 3.5% pay increase in base salary in 2025, down from last year’s 3.8%, with smaller organizations leading with higher raises.
Driven by an increased focus on fair pay, compensation remains the most challenging HR activity for organizations, exceeding recruiting and retention in both 2024 (50%) and 2025 (44%), despite having dropped a few percentage points. Approximately 31% of organizations identify unfair pay as the primary reason for losing talent, highlighting the damaging impact of pay inequity.
Despite backlash against DEI and recent executive orders creating uncertainty, employers overwhelmingly support DEI initiatives, especially pay equity, which is essential to talent acquisition and retention. Overall, more organizations are in favor of DEI than not. Only 11% say they plan to pull back of DEI, while 28% plan to increase investment.
While investment in pay equity has declined 5% since 2024, it has increased 19% since 2020 and remains a focus for most organizations (57%). Although HR leaders are debating the role of equity in DEI initiatives, most organizations (66%) believe it should remain a core component.
Pay transparency continues to advance at the state level and more employers are targeting increased pay transparency as more employees are asking about it. The percentage of companies publicly posting pay ranges in job ads has slightly deceased in 2025 (56%) compared to 2024 (60%), but has catapulted to a strong majority since pay transparency legislation was introduced.
The largest impact of pay transparency legislation on employees is that organizations are communicating more about compensation practices (31%), followed by investment in compensation data (24%), and adjusting their compensation strategies and structures (22%). Nearly three-quarters (72%) of HR professionals want to share pay ranges at least at the individual level, compared to 52% who currently do.
Following mainstream adoption of AI, HR is actively interested in exploring how advances in technology can make compensation management more accurate and efficient. Almost half of all organizations are optimistic about AI’s role in compensation management, specifically for pay equity monitoring (48%), compliance enforcement (45%), and policy documentation, pay education, and communication (46%).
Companies are finding the right mix of utilizing automation and traditional tools. While 47% use AI for job descriptions, the most advanced strategies combine it with existing software (32%). With AI being integrated into HR processes, most organizations (52%) are not planning for AI to replace human workers. Just 18% said they were actively replacing certain human jobs with AI and 20% are considering it. Approximately 30% of organizations are using purpose-built compensation management technology, which is up 5% from last year, and 61% have a compensation strategy, which has been increasing year over year.
“Navigating the complexities of compensation management remains a top challenge for employers today, particularly as they strive to balance fair pay strategies with evolving employee expectations, economic uncertainty, and the rise of AI,” says Ruth Thomas, pay equity strategist at Payscale. “Despite waning support, DEI initiatives remain a competitive advantage—equity should be seen as synonymous with merit, not separate from it. While political pressures are making companies more cautious, maintaining pay equity is essential for attracting and retaining top talent. Our analysis highlights this, identifying pay equity analysis, increased pay transparency, and confidence in market pricing as the most critical compensation activities of 2025.”
