With employee retention as a major initiative among employers in 2025, companies are taking a closer look at compensation in the months ahead. A November 2024 survey of close to 1,000 participants conducted by Mercer found that supply and demand are driving compensation. An outlook predicting a turn toward normalcy has seen some companies suggesting salary budgets will remain steady in 2025.
Merit Processes
One of the key trends of the Mercer study was the need to modernize the merit process. While the method for distributing the same budget across the board has long been standard, it should be acknowledged that this method rarely meets the need to address gaps and fill business needs. It also perpetuates pay gaps that likely impact lower-earning employees more than higher-earning employees.
Looking at the impact of salary on the frontline workforce is critical when considering the importance of these roles. Frontline workers are in high demand and these roles often have high quit rates. Mercer found that five of the top six largest increases were within job families with a large population of frontline workforce.
Pay Transparency
Companies with pay transparency also have a competitive advantage over those companies that do not. Pay transparency shows an employer is proactive and as a result is more likely to attract committed employees. For example, employees in a company practicing pay transparency are 60% more committed to the organization and 82% are more engaged in their work. This level of engagement is significantly higher than the average level of employee engagement found globally.
Mercer suggests businesses who wish to attract and keep good employees re-evaluate their current compensation method. A fit-for-purpose design provides a smart, data-driven approach for setting budgets. This includes using data to examine budgets with needs and costs in mind. The use of data can also provide a more effective and less biased approach to budgeting, offering elements of pay equity.
To get ahead of the curve, Mercer suggests businesses regularly conduct pay equity analyses to place a positive emphasis on pay equity and transparency. If taking the step toward pay transparency feels premature, consider it from the scope of retention and hiring. In the coming months and years, the importance of pay transparency will only continue to grow in the form of market pressures, expectations from employees and new hires, and broadening legislation. Why not make these critical efforts sooner rather than later?
“When employers aren’t clear about pay, employees create their own narratives – and those stories can be more negative than the reality,” said Lauren Mason, U.S. Workforce Solutions Leader, Mercer. “Despite significant investment in pay in recent years, employee satisfaction with fair pay is still on the decline.”
