Pierpoint International
Employee Engagement, Talent Management|

What Does the Workforce Really Want? Setting Your Compensation Strategy for 2025

By |Last Updated: December 24, 2024|5.5 min read|

Sometimes we need to slow down to go faster. You could pull together a quick compensation strategy based on what you did last year, but you risk not tapping into exactly what resonates with the current workforce. That could lead to employee churn and difficulty attracting top-tier talent to your vacancies. This, in turn, could lead to stagnating projects, bottlenecks, impacted revenue, and an expensive hiring process with poor results.

When it comes to compensation and benefits planning, it’s best to take your time. Understand current talent trends, review your workforce’s needs, and assess what your competitors are offering.

It’s time for a new approach to compensation planning.

What is a Compensation Strategy?

First, let’s understand what we’re talking about.

A compensation strategy is a carefully designed approach to determine how employees are rewarded for their work and contributions. Essentially, it defines an organization’s approach to:

  • Base salary

  • Bonuses

  • 401(k) contributions

  • Medical and dental

  • And much more

But the important thing to note is, these elements need to align with your company’s goals, values, and employee priorities. In high-tech and biotech sectors, for example, companies may prioritize performance-based incentives and stock options, which are especially attractive to skilled professionals in these fields. Alternatively, industries with high turnover, like manufacturing, might focus more on long-term stability, benefits, and career advancement opportunities.

Benefits of Having a Good Compensation Strategy

Who doesn’t like to feel rewarded for their hard work? Employees who feel valued through their compensation package are more motivated, productive, and aligned with company goals. Similarly, a  good compensation package improves talent acquisition by making your organization more appealing to job seekers.

The data speaks for itself when it comes to the impact of a good compensation approach:

  • Companies that offer competitive total compensation packages have a 50% higher employee retention rate compared to those with less competitive compensation (SHRM)

  • 54% of candidates decline job offers based on salary (SHRM)

  • 30% of employers report that advertising roles as open to flexible working is the most effective way to attract candidates (CIPD)

  • 46% of workers say salary or bonus is the greatest motivator for staying at their current company (Lever)

  • Companies with structured, competitive compensation packages had 25% lower turnover rates than those without (Willis Towers Watson)

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Workforce Trends around Compensation and Benefits

Trends in compensation are interesting because they’re driven by both sides; employer values and candidate priorities. That’s why understanding the current trends is so important, it’s a window into the current employer market (your competitors) and what’s driving the workforce.

Competitive pay was enough during the Great Resignation and Reshuffle of 2021-2022, but new data shows that there is less pressure on employers to increase compensation premiums for 2025. In fact, research from The Conference Board found that projected salary increase budgets for 2025 are expected to increase to 3.9%, which is only slightly above the 3.8% increase reported this year. Pay is still very important to the workforce – no one is questioning that – but expectations have expanded to include other areas too.

Some trends that will resonate with the 2025 workforce to consider include:

  • Flexibility and Work-Life Balance: A McKinsey report found that 65% of employees consider flexibility a top factor when assessing a potential employer. Particularly for working parents and people with caring responsibilities.

    It’s important to remain consistent here, if you’re already offering flexible, hybrid or remote working, changing that could have a big impact. Deloitte’s data shows that 77% of Gen Z and 75% of Millennial workers who are currently in remote or hybrid roles would consider looking for a new job if their employer asked them to work on site full-time. Additionally, about one in six would immediately start looking for a new role

  • Holistic Wellbeing and Mental Health Support: Benefits that address physical and mental health are now an expectation rather than an add-on. In 2024, the American Psychological Association reported that 75% of employees cite mental health support as a significant workplace benefit

  • Career Development and Continuous Learning: Opportunities for professional growth and development are highly valued, especially among younger employees. 76% of Gen Z and millennial employees prioritize learning opportunities when considering job offers. Including funding for courses, certifications, and other development resources in a compensation strategy can attract top talent looking to advance their careers

  • Diversity, Equity, and Inclusion (DEI): Organizations are increasingly recognizing the importance of fair and inclusive compensation practices. By designing a compensation and benefits strategy that addresses pay equity and supports underrepresented groups, companies can strengthen their commitment to DEI

The Anatomy of an Effective Compensation Strategy

Competitive Compensation Strategy Examples

There are lots of ways to design a compensation offering that reflects your company’s values and resonates with your workforce.

Here are some examples of companies who have got compensation planning right for 2025:

  • Salesforce: Recognized for its strong DEI initiatives, Salesforce prioritizes equal pay and provides transparent, annual assessments of pay gaps across gender and race. Their strategy also emphasizes generous family leave, wellness benefits, and career development programs. It’s a great model for inclusive compensation

  • Google: The tech giant is known for its range of incentives that go beyond salary. From health benefits and on-site services to equity options and student loan repayments, Google’s approach has really tapped into top-tier talent priorities. By addressing their financial, physical, and professional needs, Google reinforces its status as an intelligent, empowering employer and brand

  • Starbucks: Starbucks offers a flexible benefits program that allows employees to customize their benefits based on individual needs. This includes health insurance, dental, mental health resources including free therapy sessions, stock options, and tuition support. It’s very smart the way they’ve mirrored their brand strategy in their compensation strategy, giving people the opportunity to pick a benefits package from a very attractive menu

  • IBM: IBM’s compensation strategy is built on employee growth and career progression. Alongside a competitive salary, IBM makes it clear that everyone can progress in their roles with mentoring, courses, and stretch opportunities. They have their own online academy to support internal mobility and ongoing training

If the big names are getting it right and putting this much thought and effort into their compensation strategies, then we all need to. Ultimately, compensation planning is well worth the effort as the return on investment you gain in lower recruiting costs, lower churn rate, motivated employees, higher tenure, and higher company morale is significant.

If you’re looking for support with your compensation planning, talent retention or attraction strategies, Pierpoint can help. Book a call today to discuss your talent needs.

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Alyssa Terrizzano
About the Author: Alyssa Terrizzano

Alyssa Terrizzano is the Co-Founder and CEO of Pierpoint International, where she leads the company’s growth and business strategy. With extensive experience in talent acquisition and human resources, Alyssa has a strong background in recruitment and managing teams in the medical tech, biotech, and high-tech industries.

Alyssa's focus on creating collaborative work environments and supporting team development helped establish her as a recognized leader in the HR and Recruitment Process Outsourcing (RPO) sectors. Alyssa holds a Bachelor of Science in Human Resources and an MBA, and values teamwork in addressing challenges.

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2024-12-24T12:47:50-05:00

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