Evolving Expectations: Sustainability and Retention

Hannah Hargrave Compensation Consultant

Overview

As we move through the second quarter of 2025, the anticipated themes of a slowing economy, new legislation and evolving workforce expectations continue to be the primary forces shaping Compensation and HR practices. Employers are actively addressing these challenges, though in ways that were not always foreseen. With significant layoffs, ongoing advancements in AI and automation and a growing emphasis on talent retention, the first quarter has highlighted the importance of compensation strategy, pay transparency and employee-centric total rewards practices.

Trends

In the first months of 2025, approximately 221,812 jobs were eliminated, marking the highest layoff rate year-to-date since 2009¹. Both workers and organizations are being forced to adapt in response to an increasingly complex and shifting environment.

Employees’ expectations are still largely influenced by their experiences during the previous “hot” job market, where talent acquisition was highly competitive, and employers often exceeded salary ranges to secure top talent. However, as the economy slows and large-scale layoffs continue, many highly qualified professionals now find themselves in the job market. A noticeable disconnect exists, as these employees still expect their roles to command high wages, unaware that the prior overreaching by companies, driven by the need to compete for talent, was often a factor contributing to the widespread workforce reductions.

Ultimately, when salary ranges are published in job postings, candidates should gain a clear understanding of the position’s value within the organization. Nearly 56% of organizations are now publishing salary ranges in job advertisements.² Despite this transparency, many candidates continue to apply for positions at salary levels lower than their expectations, hoping to negotiate a higher wage. In response, some candidates are broadening their skill sets to increase their marketability.

The industries most affected by these shifts include technology, government, retail, accounting, manufacturing and logistics.³

What Employers Need to Know/Do

The dramatic changes in the labor market at the start of 2025 have underscored the critical importance of sustainability and emphasized the need for compensation structures. During the early stages of the pandemic, we learned that job retention is an integral part of the employee value proposition and should not be undervalued. Companies are now faced with the task of demonstrating this commitment once again. Regular updates and annual reviews of salary structures are essential to ensure that compensation practices remain competitive while avoiding reactions to short-term market fluctuations.

Layoffs affect employees leaving the organization, but also those who remain. A decline in employee engagement can take 18 to 24 months to recover.⁴ As a result, employers are increasingly focused on retention-based incentives to foster engagement and loyalty. This is particularly vital for companies in their early stages, those backed by private equity, or organizations with a significant portion of their workforce in the first three to five years of their careers, when turnover is typically highest. Performance-based initiatives are at the forefront of this strategy, with many companies using this period to refresh outdated performance management processes.

While performance is under review, merit-based pay adjustments are expected to be more conservative compared to recent trends, gradually returning to pre-pandemic levels. Employers are budgeting for merit increases in the range of 3.3% to 3.7%, continuing to trail inflation rates. This cautious approach reflects the cooler labor market and broader economic uncertainties.

There are various ways to enhance the employee experience and increase retention without impacting fixed costs. While competitive base pay and benefits remain essential, a heightened focus on employee well-being, especially amid the growing trend of return-to-office mandates, is distinguishing certain employers. Hybrid work arrangements are on the rise, while fully flexible and remote work options are in decline.⁵ The disconnect between employees’ preference for greater workplace flexibility and leadership’s desire for increased in-office attendance presents a unique opportunity for organizations to reimagine and reinvest in well-being programs to support workers as they return to the office.⁶

Lastly, organizations should leverage their job architecture to prioritize skill development matrices. As employees continue to enhance their skill sets, staying aligned with market fluctuations and ensuring internal equity will be crucial in maintaining competitiveness.

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