Ling-Yi Tsai is a seasoned veteran in the HRTech space, where she has spent decades helping global organizations navigate the delicate balance between human capital and technical innovation. With a deep background in HR analytics and talent management, she specializes in using data to drive organizational change and refine recruitment and onboarding processes. Today, we explore the shifting landscape of compensation, where stable salary budgets are meeting a rising tide of economic caution. We will discuss the strategic evolution of pay from broad increases to targeted investments in specific skills, the role of employee experience in retention, and how leaders can navigate a market defined by a low supply of labor.
With salary budgets expected to stay stable at around 3.4%, how should leaders transition from broad-based pay increases to the more precise, performance-driven strategies that are becoming necessary?
The move toward a 3.4% stable budget marks the end of the “blanket raise” era, requiring leaders to trade their broad brushes for scalpels. We are seeing that 52% of organizations reported no change between their anticipated and actual budgets in 2025, which tells me that fiscal discipline is becoming the new baseline. To make this transition successful, companies must lean into granular data to identify the specific skills and roles that drive the most value rather than spreading resources too thin. By moving toward these more precise strategies, leaders can ensure that every dollar spent acts as a catalyst for performance and long-term stability. It is a move from a survivalist mindset to one of intentional, data-backed investment in the workforce that prioritizes high-impact contributions.
Given that many organizations are facing significant cost management and inflationary pressures, how can they justify these targeted pay actions when financial results might be weaker than expected?
It is a high-wire act, especially when you consider that 35% of employers are feeling the heat of cost management and 27% are battling the shadow of recession or weaker financial results. In this environment, justification comes down to the “cost of inaction,” as losing top-tier talent during a downturn is far more expensive than a strategic pay adjustment. We are seeing 30% of companies specifically citing inflationary pressures as a primary concern, which makes the case for performance-driven pay even stronger. When budgets are tight, you cannot afford to reward mediocrity; you must prioritize the 31% of organizations that are actively adjusting their reward programs to favor high-impact contributors. Leaders must be transparent with their teams, explaining that while the overall pool is limited, the recognition of excellence remains a non-negotiable priority for the health of the firm.
With only 17% of employers adding to their headcount, what specific tactics are being used to attract new talent and keep existing stars from looking elsewhere?
The competition for new talent remains incredibly fierce despite the slow hiring rate, leading 32% of employers to raise their starting salaries and another 30% to hire at higher salary ranges to secure the right fit. This aggressive stance on recruitment is balanced by a protective strategy for current staff, where 29% of companies are utilizing retention bonuses or spot awards to acknowledge hard work in real-time. Even though 85% of employees have stayed put due to economic uncertainty, smart leaders know that “staying” is not the same as “engaging.” These spot awards create a sense of immediate appreciation that feels more personal and visceral than a standard annual increase. It is this combination of high-entry offers and mid-stream incentives that keeps the talent engine running without overextending the core salary budget.
Beyond the paycheck, how are companies evolving the employee experience to maintain morale in an environment where salary increases are hovering in the land of 3%?
When the financial levers are limited to that 3.3% or 3.4% median, the focus naturally shifts to the lived experience of the employee. Currently, 43% of organizations are prioritizing improvements to the overall employee experience, recognizing that culture and support often outweigh a few extra percentage points in a paycheck. We are also seeing 38% of leaders placing a heavy emphasis on diversity, equity, and inclusion, which builds a sense of belonging that is hard for competitors to buy. This holistic approach turns the workplace into a community rather than just a site of transaction, which is essential for long-term retention. By focusing on how a person feels within the organization, companies create a “sticky” culture that persists even when the economic environment remains cautious.
What is your forecast for the balance between labor supply and demand and how it will impact compensation strategies in the coming years?
My forecast is that we will remain in a supply-constrained reality for the foreseeable future, making the “war for talent” a permanent state of affairs rather than a temporary skirmish. As demand eventually picks up, those who have spent this period of 3% increases wisely—investing in their internal talent pipelines and refining their reward structures—will be the ones who dominate the market. We are already seeing this intentional approach take root across North America and Europe, where targeted adjustments are replacing uniform raises to solve local skill gaps. The organizations that succeed will be those that treat their compensation strategy as a living, breathing part of their business model rather than a static administrative task. In the long run, the winners will be those who master the art of the precise reward, ensuring they have the right people in the right seats when the economic tide finally turns.